When setting up your investment portfolio in indices trading, your first question is whether you will plan for the short-term or the long-term. Short-term trading brings larger returns in shorter amounts of time. On the other hand, long-term investing has the benefit of lower risk and lower short-term stress.
What is Indices Trading?
Indices trading is, basically, trading in the Stock Index. Indices trading means you are trading on a grouping of stocks from different companies. It works the same way: the value of your investment portfolio depends on how well the grouping of stocks is doing.
Stock indices depend on many factors for their values. One is the geopolitical situation. An unstable nation will inevitably have lower stock values than stable ones. Another is the credit rating assigned by international consultancy firms (like Standard and Poor). Yet another is the housing or real estate industry, which reflects the changes in a population’s living standards.
While investors need to keep track of all these, what they watch for depends on if they are investing in the short-term or the long-term. Short-term investors focus more on consumer sentiment. At the same time, long-term investors tend to watch long-term political and economic changes.
Short Term Indices Trading – Benefits and Shortcomings
When you invest in short term indices trading, what matters most to your portfolio is consumer sentiment. Consumer sentiment is the key to high returns in short-term indices trading. As fast as consumer sentiment spirals down, it can shoot up to incredible highs in short amounts of time.
One example of this is the Australian housing market itself, which grew to record highs practically overnight. Because of this, short-term trading can make record profits. On the other hand, this is the bane of short-term trading. Of all the factors influencing stock indices, nothing can change as fast as consumer sentiment. Therefore, there is comparatively more risk.
Long Term Indices Trading – Benefits and Shortcomings
Long-term indices trading depend on compounding profit over a long period of time. Because of this, they can sit quietly through short-term civil unrest, short-term market booms-and-busts, and quick turns in consumer sentiment. All these are events that would have short-term traders pulling their hair out. The mindset of the long-term investor is to “wait-and-see.”
At the same time, this is the potential danger of long-term investing. Long-term investors need to watch over their indices to make sure they are compounding profits, not losses. However, the wait-and-see attitude is much lower in risk. While the wait-and-see attitude can be deadly, as geopolitical situations can get out of hand (like the Syrian civil war), they are exceptions.
Short-term vs Long-term Indices Trading
When it comes right down to it, there is no real “better” option between the two. It depends on what you want from your investment portfolio, and when you want it. While long-term investing is definitely safer in that it can weather a number of short-term storms, short-term investing can bring in more profits in a shorter amount of time.