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Boost your investments with PRIME CAPITAL ENTERPRISES
Learn more about the ins and outs of investing, the different types of investors, the various strategies and even how our many tools work. So you can master them to perfection and use them to your advantage.
The Investor Academy
Welcome to the PRIME CAPITAL ENTERPRISES Investor’s Academy, your investment knowledge hub. Here you will learn how investing works, the different products you can invest in and the various strategies you can opt for.
What type of investor are you?
Several parameters must be taken into account when starting to invest. To start off on the right foot, you need to figure out what type of investor you want to be.
What category of investment are you targeting? Will you be more active or passive? This lesson will help you define yourself as an investor.
Active investing is also called “trading” or “speculation”. Investors who practice it constantly monitor what is happening on the various stock exchanges and react daily to market fluctuations.
They sometimes use more complex financial instruments such as options and futures. Here, the strategy is generally short-term and aims to generate a return above the market average. It takes a lot of time and requires in-depth knowledge.
Therefore, this type of investment will not suit investors new to the financial markets.
Passive investing, on the other hand, focuses more on long-term investments. People who practice it buy less volatile and more diversified products to spread the risk between their different investments.
The losses incurred on certain volatile stocks will thus be offset by the profits made on other investments. Analysis needs are less frequent, and there is no need to keep an eye on the markets all the time.
Complex financial products
Besides the simple financial products we looked at in the previous lesson, you may have heard of more complex instruments, such as options and speculative products. These products are unsuitable for novice investors as the risk of loss is greater. This lesson, however, aims to give you a simplified presentation so that you understand their usefulness and that you know the risks associated with these products.
Derivatives
If you own a stock, you own a share of the company proportional to that stock. But there are also investment products whose value “derives” from an underlying asset or product, which can be a stock or a commodity. These products are called “derivatives”. Seasoned traders can use it to speculate on price fluctuations or to hedge risk. Although these derivatives can sometimes offer a high return, they are distinguished above all by a cost and a significant risk.
Options
An option contract is a common example of a derivative product. If you expect the price of a stock to move one way or another, you can trade your securities based on that prediction through an option. As its name suggests, the option allows you to buy or sell an underlying asset, such as a stock, at a fixed price and at a future date, both defined in advance. A call option allows you to buy the underlying product, while a put option gives you the right to sell it.
Leveraged products
Another common derivative product is the futures contract. It is a standardized contract concluded, like an option, between two parties, at a predefined price and with an expiry date. But unlike the latter, most futures contracts are settled by cash payments and not by the physical delivery of the underlying on the expiry date. In addition, these contracts are often larger in volume than options.
Leveraged products
Finally, there are also speculative products (or leveraged products) issued by financial institutions whose names and characteristics vary. They often make it possible to borrow money from their issuer to be able to buy and sell with more exposure to the underlying, which creates a leverage effect. These products usually come with high fees levied by the issuer. Examples are certificates and warrants.
Types of orders
When you decide to buy or sell a product, you will find that these operations can be done via several types of orders. What are they, and how do you know which one to choose? This lesson introduces you to the types of orders offered by DEGIRO and their purpose.
The limit order is the most frequently used. It allows you to specify the number of shares you wish to buy or sell and the maximum price at which you intend to carry out the operation. Suppose you want to buy 100 shares of company ABC. The price at time T is €35 per share, but you don`t want to pay more than €33. You can then place a limit order for 100 shares for €33 per unit. If the stock price falls to €33 or below, your order will be executed at the best available price.
There are, however, more advanced order types, such as the market order. Here you only indicate the number of shares to buy or sell. You don`t specify a price. The order will be executed at the most favourable price at that time. Let`s say you want to place an order to buy 100 shares of company ABC. If its price is €35 and 100 shares are available at this price, your order will be immediately executed at the price of €35 per share.
There are also order types used to respond to market changes. For example, if you have a position of 100 shares in ABC and want to protect yourself from falling prices, you can place a stop order. Let`s say the price is currently €35 per share, and you want to sell the position if the price goes down. You can place a stop order with a stop price of €30. If the price drops to €30 or below, your order will be sent to the exchange as a market order. This type of order is useful if you cannot always monitor the markets.
What if the sharp decline mentioned in the previous example is rectified? Suppose you want to sell if the stock price falls below $30, but you expect at least $25 per unit. You can then place a trigger range order. If the price falls below the trigger price of €30, the order will be issued as a limit order with a minimum sale price of €25.
Besides these different types of orders, the last point to consider is the duration of the order. An agenda will only be valid during the trading session of the day in question. If the order is not filled before market close, it will expire and disappear from your account. You can also place a continuous order, or GTC, which will remain valid for 90 days.
Technical analysis and stock market charts
Once you have opened your PRIME CAPITAL ENTERPRISES securities account, you then have access to more than fifty stock exchanges in more than thirty countries. The next question is which stock(s) to buy. Many investors already know in which financial product(s) they want to invest on the stock market.
Others prefer to spend more time studying the financial instruments they want to invest their money in.
When it comes to choosing a stock to buy on the stock market, there are two schools of thought: technical analysis and fundamental analysis.
You will (re)discover the main concepts of stock market technical analysis and learn how to use certain graphical analysis tools available on our trading platform (accessible via your PRIME CAPITAL ENTERPRISES securities account). You can also read our article on fundamental analysis in the stock market.
What is fundamental stock market analysis?
Fundamental analysis is a methodology used to identify investment and trading opportunities by analyzing trends and focusing on patterns. Investors use fundamental analysis to calculate the true underlying value of a stock.
Using key figures published by companies, you can calculate financial ratios to determine whether a company`s stock is a profitable investment or not.
These numbers typically come from three separate but interconnected reports that a publicly traded company releases to its investors in quarterly or annual reports: the balance sheet, the income statement, and the cash flow statement.
What is your investment plan?
Now that you know the fundamentals of investing, you have one last thing to do: define your investment plan. By setting goals and a time horizon, you will be better able to assess the legitimate risk you are willing to take. This lesson explains setting your investment goals and building a balanced portfolio.
Anticipation above all else
Now that you know the fundamentals of investing, you have one last thing to do: define your investment plan. By setting goals and determining the duration of your investment, you will be better able to assess the risk you are willing to take. This is what the investment plan is for.
Investment objectives
You need to start by setting goals. Some, like financing your children`s education, are quite specific. But you can also invest for your retirement or simply to obtain a higher return than your savings account.
Building a portfolio
The constitution of the portfolio, therefore, depends on your situation and your personal preferences. A “risk-averse” portfolio will rely more readily on low-volatility products, such as
bonds from stable countries.
Conversely, if you are looking for a high return rate, you will opt for stocks, index funds and bonds presenting a higher risk. Of course, you can also aim
for the compromise and balance your portfolio between low-risk and riskier products.
Revaluation
Once your portfolio is created, you can track your results over time. Check that the distribution of products in your portfolio remains in line with your objectives and reassess it if your situation changes.
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