To start trading can be somewhat daunting. You have to find a system to follow – a system is important otherwise you are trading without rules. You have to find and become familiar with a trading platform. And you need adequate funds to keep your risk low on each individual trade.
Since starting my blog in November 2013 I have provided you with dozens of share suggestions. However, from my own portfolio I have made about 200 trades during this time. I would not be able to blog these trades to you as it often happens too quickly.
I like to keep my risk level on any one trade at or below 0.5% of my fund. This risk is based on a unique one plus, two plus stop system that has been successful in managing my risk. To do this, and still have the freedom to trade a good variety of shares, your fund needs to be of a reasonable amount.
Most folks, when starting out, either don’t have the capital or trade with a small amount of capital till they get confident. If you are trying to trade with £1,000 or £2,000 then your risk is usually unacceptably high as you are limited in what you can trade and when you do trade your percentage risk relative to your fund is high: certainly more than 0.5%!
My thought is this: a few of us (open to say four or five of us) will each put £1,000 into a joint fund which I will trade. I will trade this fund in parallel with my main fund which will act as a financial umbrella for this proposed starter Slow Trader fund. I will manage the fund via a spread sheet that will record exactly where we are. Your balance in the fund will be an exact split of the number of people invested. For example, five people invested (including myself) then you will have 1/5th.
Funds only take 3-working days to transfer. However, when you want to cash-in you would need to allow about a 3-month lead time as this is about the maximum hold time of a share – but could be considerably shorter.
You can follow the trades using any free share charting system. This will build your own understanding of how to trade. The added interest of being invested provides motivation. I would update you on the progress of the trades via this blog certainly monthly and weekly where I can.
Of course, there will be no management charge just the small Daily Funded Bet (DFB) charge imposed by IG which amounts to a few pence a week. This is because IG is a leveraged account. You bet with more money than you put down. This charge is worked out by IG and applies to individual share purchases depending on how long you keep it and whether the share is in credit (its share price is up) or debt (its share price is down). IG make money via a spread when you buy: Lets say a share is trading on the LSE for 100 pence, then to buy that share through IG would cost you say 1 pence making your share price 101 pence. This is only an illustration. IG spreads are usually tight (the occasional share attracts a wide spread and this must be taken into consideration in good trading). All trades, whether spread betting or investing carry a spread and IG is usually better than most.
All costs, no matter how small initially, are a significant consideration over the longer term when trading. That is why my system has a rule of risk verses potential reward. If this does not stand up, we don’t buy.
Profit, with present legislation, on spread betting accounts is tax and capital gains free. That is why the account is called betting rather than trading. Other than the spread and DFB charge there are no other costs when buying or selling.
My style of trading is medium term, that is between a few days and a few weeks. This is not day trading where the risks are significantly higher for many reasons that I will not go into detail here. I use daily, weekly and monthly charts. I do not use intraday charts which means a chart showing share price on the present day. I pay attention to the monthly cycle of the market and I go long and short. that means I trade to say a share is going to increase in value (long) and I trade to say a share is going to go down in value (short).
Finally, I trade from all the FTSE 350, the AIM 100 shares and US shares (from about the $35 share price range and above). In total just short of 2000 different companies. I look through each of these at least once a week and place into watch lists for potential trade as the week progresses. From 2000 shares usually 20 to 30 shares will be potential trades of which about 5 or 10 will come good on any given week.
A fund of the size I am considering for the starter Slow Trader will hold probably between 4 to 20 shares at any given time depending on the market and price of shares we trade.