Guide to position trading in Singapore

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One of the ways to make money in Singapore is trading stocks, commodities or currencies. While it has been very advantageous for many people, risks should be well understood before taking the plunge.

There are various ways investors seek to make their returns in the financial markets. Some people invest in mutual funds, while some others prefer index investing. Another popular strategy among professional traders is position trading. It involves making long term investments to hold them for several months or years, rather than minutes or hours.

Many styles can be classified as position trading. It comes down to one basic idea – the investor purchases an asset that he believes will appreciate faster than other alternative investments available to him. The most critical aspects of position trading are patience and perseverance because most assets take time before producing significant gains.

What is position trading?

Position Trading refers to buying and holding onto a stock for an average of 3-6 months, where you can achieve a 200% return on your capital. It’s also one of the riskiest methods as you are most likely holding against the trend when purchasing shares. 

You could end up losing everything if things go south within this time frame. It works the best with large caps stocks where daily volume doesn’t fall below 500k units per day.

You’ll need enough funds to start as it’s very capital intensive, and you need to purchase the stock in bulk. It’s also a speculative trading method, so you can’t short sell stocks using this method alone.

Of course, there is no real “guide” to doing position trading, but here are some tips to guide those who want to take a shot at this.

Have a large sum of cash ready for purchase

The initial buy-in requires a large number of funds that draw from your entire trading account, including your leverage facility if you’re using one. If you use an ordinary forex trading account with only up to 1:200 leverage, you will require a S$300k minimum investment to make this work on SGX. 

Analyse the factors that influence a stocks price

There are many things to consider when analysing which stock to buy. Execution risk, financials, earnings, dividends are all crucial considerations, but the essential factor to consider is whether or not this buying opportunity is unique. 

You can’t sell your holdings quickly, so your analysis needs to be correct. It pays off big time if you’re right and up 200% in just six months if you’re wrong? Well, it’s still better than being stuck with nothing at all.

Confirm that your selling strategy won’t hurt you

If you want to maximise your profits, then consider waiting for the shares to reach their upper trading limit before selling them for quick turnover. However, if you’re caught in a downtrend, this may make your losses worse. A better strategy is to use an averaging principle to sell some of the shares to limit your exposure.

Use stop-loss orders for fear of short term volatility

It’s not always easy to determine when the right time is to sell, so it helps to put stops on each position so that you can minimise potential loss due to sudden price movements. Of course, another important consideration is whether or not any upcoming catalysts could push prices up further than expected.

Beware of broker’s margin calls

Brokers offer leverage of up to 1:200, but this also works both ways as you can be forced to liquidate your positions prematurely if you cannot provide sufficient funding to meet the required amount. Most brokers will send out a warning email before this happens, but it pays off to keep an eye on how much you have left in your trading account so that you can transfer more funds over when needed.

Bottom line

The best way is to test with small sums until you understand what strategies work and then graduate to more significant sums of cash once you’ve got a better grip of using position trading effectively in Singapore. Navigate here for more info.

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