Automated trading for struggling finance investors

By Jennifer F.

In September 2015, Singapore entered a bear market after China’s slowing economy caused commodity prices to tumble. Despite a slight recovery since the start of 2016, the Straits Times Index (STI) remains in a precarious position, with businesses worried that this will have a negative knock-on effect for the economy.

However, bear markets actually represent tremendous opportunities for growth, especially if your business wants to obtain some much-needed liquidity. Even though the markets might be falling, here are a few tips on tricks on how your business can actually benefit.

Capitalise on automated trading

Do you struggle to find the time needed to manage your financial investments? Why not try automated trading? This uses cutting-edge technology to identify new opportunities and analyse trends thanks to a wide range of indicators, easing the burden on people that don’t have the time to commit to trading.

You can also fit your strategy around your schedule, executing multiple trades simultaneously day or night. What’s more, seeing as trades are automated, you are able to reduce the impact of emotional and gut reactions too.

Take short positions

Taking a short position (also known as short selling) is when you sell shares you don’t own in anticipation of the stock falling in the future. When the share price drops, you must then buy those shares at the lower price to cover the short position.

The only potential problem with this is that stock market analyst and financial adviser David Kuo believes Singapore’s market “could have reached or might be reaching a base,” already.

Consider a put option

The opposite of a call option, this gives you the right to sell a stock at a particular strike price until a certain time in the future, known as the expiration date. The price you pay for this option is called a premium.

If the stock price continues to fall, you can either exercise your right to sell the stock at the higher strike price or sell the put option for a profit. The latter increases in value as the stock falls providing it moves below the strike price.

Focus on the long-term

Bear markets are best suited to those with long-term investment objectives. This is because when stocks drop, you will be given the opportunity to invest in quality companies at a sizeable discount.

You might need to relinquish some capital for the time being, but by focusing on prolonged prosperity rather than rapid returns, your portfolio’s performance will take care of itself.

Opt for short ETFs

Otherwise known as inverse ETFs, these produce returns that are the opposite of a particular index. To give an example, if the STI falls by 25 per cent, the ETF will rise by 25 per cent, making them ideal for bear markets or investors that want to profit from a downturn.

However, you need to be aware of the risks associated with ETFs including leverage and asset management responsibilities, as this option does not relieve you of your duty to make informed investment decisions.