Investing is one of the best things anyone can do to ensure they’re getting the most out of their money. Rather than leaving your cash to dwindle away in a savings account, you can use investment opportunities to transform your wealth, build a bigger retirement fund, or achieve a range of financial goals. The opportunities are endless.
The biggest issue for most people, is making that first step into an environment they’re not familiar with. The concept of investing can be difficult to get your head around when there are so many terms to understand. That’s why we thought we’d tackle three of the most complicated terms out of the gate, so you can go into the market well-prepared.
Pattern Day Trader
The PDT designation, or pattern day trader term is the name given to an investor or trader who executes four or more trades over the span of around 5 business days. To be in this category, you’ll need to use a margin account, and the number of trades you conduct will need to account for more than 6% of your total trade activity in the given window of time. If you start operating at this speed and consistency, then you’ll be flagged as a PDT by a broker, and the designation will place some limitations on how you can trade going forward. It’s important to understand this before you jump in.
Shorting Stocks
Shorting stocks or short selling is a trading or investment strategy that speculates on the potential decrease in a security’s value. This advanced strategy is a common option among a lot of traders who want to make money quickly. The idea is that you borrow an asset and immediately sell what you borrowed with the plan of buying it back at a lower value later. If you believe that the price of an asset is about to drop sharply, then you can make a profit from the difference between the price that you buy the asset at, and the price you eventually sell it back to the lender for. Some people use this strategy as a way to diversify their portfolio and hedge their bets in other areas of investment growth.
Diversification
This may be a more common term than those mentioned above, but it’s also one that many people struggle with. There’s more to building a diverse portfolio as an investor than buying several different stocks in the same industry. You also need to consider different industries, different kinds of investment assets, and various opportunities.
Although people can have various strategies in mind for diversification, it’s important to remember that every investor should avoid having too many of their eggs in one basket. Even if you feel confident spending your money primarily in the forex and securities market, it always helps to have other solutions in place in case you end up seeing a drop in value with an unexpected change in the marketplace. Diversification helps you to prepare for all kinds of eventualities.
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