SINGAPORE — Trading seems to be getting more popular amongst youths these days. But how exactly does one go about doing it? And what are some things to take note of?
This is part of a series where Yahoo Finance Singapore will focus on different aspects of millennials and finance. In this fourth part, we speak to Ernest Cai, former director of client success at digital investment service ProsperUs, who shares more about the trading process.
How does trading work?
Trading might sound like a complicated matter but it essentially occurs when a buyer accepts the ask price or a seller takes the bid price of a stock, said Cai.
The investor will then review their investing portfolio from time to time, to check if their investments will aid in reaching their investing goals. Following which, they will rebalance their portfolio to diversify and keep up with the latest market performances.
But as with all financial decisions, it is important to be mentally prepared. Cai suggests that youth investors do their research first so that they can better understand and identify opportunities in the stock markets.
“Only then should you execute and adjust according to the latest news, market movements, company reports and your own risk appetite. No matter which stage you are at, always do your due diligence and learn from your mistakes,” added Cai.
For youths who are looking to start trading, Cai assures that there is no minimum amount required and one can even start investing with ‘as low as S$100 per month’. They can also ‘stop, skip, withdraw, and resume trading whenever they want’.
More importantly, youths should establish a checklist of their financial situation and determine what they are comfortable to invest in. Cai also shared six golden rules that youths who are interested to start trading should be aware of:
#1 - Have at least six months of emergency funds in cash
#2 - Understand the businesses you want to buy
#3 - Diversify your financial portfolio
#4 - Expect volatility in the stock market
#5 - Refrain from borrowing money from others to invest
#6 - Don’t time the market but invest on a regular basis
He also warns that it is better to start investing early in small amounts than to do so in the later years because of the impact of inflation and rising interest rates.
“Your bank interest rate’s growth cannot beat the inflation rate, and the passive income in the form of dividend pay-outs from blue chip counters over time may yield you better returns.”
Personality of a trader
However, some youths may be concerned about needing a certain ‘skill set’ or ‘personality’ to be a trader. After all, traders are often portrayed in the media as rather gung-ho people.
“As a trader, you need research and analytical skills to monitor market movements, political, economic and other factors that may impact the stock market,” advised Cai.
Discipline and patience are also traits that are important as a trader, although Cai admits that these are traits brought upon by one’s environment and are hard to cultivate by just practising alone.
Cai added that traders have to be well prepared when trading and should never ‘put all their eggs in one basket’. He suggests youths trade in various instruments in different asset classes, and in a range of sectors that have no direct correlation.
“It is possible to end up losing all the money you invested but it is easily avoidable by diversifying your portfolio and doing your own due diligence to research,” said Cai.
22-year-old Gwenda Ang feels that it is important for traders to have a good learning attitude too. Ang, who is a business and political science undergraduate at the National University of Singapore, has always been interested in the stock market but never really knew how to start dabbling into it.
It was only in mid-2020 that she privately messaged a financial advisor on Instagram who then taught her the basics and how to get started. Ang has since made a five-figure sum from trading.
“I started by learning paper trading before moving to ETFs after reading up a lot more about the technicality, seasonality and type of stocks. There is a wealth of resources available online that we can make use of,” shared Ang.
While trades such as stocks, exchange traded funds (ETFs), bonds and mutual funds are relatively less risky, trading might still not be everyone’s cup of tea, especially if you’re someone who doesn't like to take risks.
Fresh graduate Celestee Low, 23, would rather save her money for a wedding and house, instead of trading or investing. She usually spends her money on outings with friends and clothing sales.
“At the moment, I’m just looking forward to starting working full-time in a job that suits what I feel passionate about, instead of growing my money,” said Low.
However, Cai still feels that ‘letting your money work for you is always a better option than just leaving it lying in a bank’.
For example, if you earned S$1,000, leaving it in your savings account would garner a meagre increase of 0.75% of interest rate over a year, which amounts to S$7.50.
Meanwhile, executing a buy trade on a dividend-paying stock, would likely get you more than S$30 during the same period from dividend payments of approximately 3.5-4% annually, or from the sale of the purchased stock, said Cai.
“Trading allows you to have a higher possibility to achieve your financial goals. But remember to only invest in what you are comfortable with,” added Cai.
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