Important Notes On Trading
Do's of Trading
• Do take a long term view. Bearing in mind the power of compounding, investing early and in securities of relatively stable earning is better than trying to make short term speculation for huge profits and taking big risks in the process.
• Do distinguish facts from opinions. You should learn by gathering more facts and observing the outcome of events, and not merely basing your investment decision on opinion and trying to profit from short term speculations.
• Do be familiar with the regulations and risks associated with each product you are investing in. For example, in share trading, breaching the trading rules can be costly (e.g. naked short-selling) and may even constitute a chargeable offence (e.g. insider trading).
• Do ensure that you are aware of all the transaction costs for each product you are investing in as it will affect your bottom line.
• Do read more and get familiar with the terms frequently used in finance. This will facilitate your communication with your trading representative or financial adviser representative, allow you to understand statements sent to you by COP, and make informed decisions on investments (e.g. reading research reports or company finanical statements to find out more about the company).
• Do be patient. You should treat securities as long term assets, instead of looking to make a quick buck. Make sure that you have the holding power before you buy securities and only select securities with good fundamentals. Do not invest funds that you will need in the short term because that might force you to sell securities at a loss to get the money back, even when you know it is a good asset that will bring you profit in the long term. It is good to set aside a budget for different purposes by maintaining separate accounts (i.e. putting your budget for investment in your securities trading account as it allows you to track the performance of your investment easily by calculating your portfolio profits and losses for you).
• Do cut your losses when you realise you have made a mistake in your assessment of a particular investment.
• Do exercise your own judgment when you read up on investments. While trying to get yourself more knowledgeable, you will chance upon some investment strategies that are innovative and sound logical but are NOT mainstream. Exercise caution when you decide to employ those strategies for your own investment. You have to ask yourself whether you fully understand those strategies and whether they are applicable to your situation, for example if you have the resources (e.g. time, money, market intelligence) to employ those strategies.
Don'ts of Trading
• Don't share your trading password with others. You should not allow other people to trade using your account. You will be liable for all trades done through your online trading account.
• Don't invest beyond your means. Ensure that you have the available capital and means before conducting your investments.
• Don't make hasty investment decisions. Be fully aware of what you are investing into.
• Don't do naked short-sell. Naked short-selling is the term used to describe a situation in which an investor sells shares that he has yet to purchase.
In Singapore, naked short-selling may result in a penalty of 5% of the value of the failed trade, subject to a minimum of S$1,000