Monday, February 1, 2016, AM | 1 Comment
From a very general standpoint, investing methods can be broken up into one of two categories. These have been categorised as:
- Active methods
- Passive methods
As many would imagine, active investors tend to flock to the Forex markets due to the global liquidity of this massive sector. It is nonetheless important to note that there are countless investors that espouse a more passive system of trading.
That is, they tend to buy and hold as opposed to enacting a quick turnover. The primary benefit here is that passive investors will often avoid much of the volatility associated with more active positions.
What are some of the hallmarks of a passive trader?
Stability is often defined by diverse holdings. As opposed to relying upon currency pairs alone, the passive investor will place a greater emphasis upon other sectors such as commodities, equities and even the indices themselves.
This allows them to take into account broader market movements as opposed to discrete daily fluctuations.
Also, one underlying asset will frequently be used to offset a negative holding.
While massive gains will not accrue overnight, this is less important than stability within a changeable climate.
A Focus Upon Market Fundamentals
Passive investors will naturally take into account the technical aspects of a holding.
However, long-term positions dictate that the underlying market fundamentals play a critical role.
For example, a sudden knee-jerk reaction in relation to a cut in oil production may not be as important as the long-term projections of the strength of the dollar in comparison to the euro.
Developing an aptitude for appreciating the “big picture” will normally take time and patience.
An Avoidance of Leveraged Trades+
Leveraged trades have garnered an understandable amount of attention within the Forex sector. This is normally associated with the large profits that can be enjoyed within a short period of time.
Most seasoned traders are well aware that this very same investment vehicle can incur crippling losses if the correct strategies are not employed.
Thus, passive traders tend to shy away from any type of leverage. By the very definition of a leveraged position, short-term concerns take precedence over long-term predictions.
Taken to the extreme, a passive perspective may even view a leverage a form of financial gambling.
Transparent Trading Platforms
Passive investors are extremely prudent in terms of the risks that they are prepared to take.
So, they prefer only the most reliable trading platforms such as those provided by CMC Markets.
Thanks to quick trades, real-time data, access to news feeds and long-term charting capabilities, such software is quite attractive to those who embrace a more conservative approach.
Not everyone will choose to adopt a passive trading strategy. However, the benefits of greater stability and more predictable profits cannot be denied.
As 2016 is predicted to be a rather volatile year, it will be interesting to see whether or not this conservative viewpoint gains a firm foothold.Facebook.com/doable.finance