3 Ways to Leverage Your Investments
Leveraged investments let small investors get big results.
Leveraging your investments is understood as maximizing profitability through very specific types of debt. It works as a credit limit made available by a brokerage firm and allows you to trade a higher amount of cash than what you have available at the moment.
As you may know, leveraging your investments means that you can invest in the same way as big investors. This is the great advantage of this strategy: enabling small investors to also achieve great results.
Read also: How to find the best stocks to invest in
If you’re not familiar with everything involved in leverage, we recommend you to take a look at the basics of margin investments.
Several investment strategies offer the possibility to leverage your investments and getting to know them will allow you to get the most out of your capital. So, let's talk about the three ways considered ‘best’ to leverage your investments.
1. Day trade leverage for your investments
Day trading is the most common way for investors who tend to leverage their investments. The purpose of these operations is to profit quickly, benefiting from small fluctuations in share price.
These traders adopt the strategy of carrying out a greater number of transactions to profit from the amount of all of them. Many of them live on the Stock Exchange alone or seek daily goals between 2% and 4% of profit per day.
2. Leverage your investments by selling short
Short selling operations, or selling short, is a tactic in which you seek to gain from the fall of a stock. For this you sell a stock even without having it and buy it back when it’s cheaper.
Read also: Technical Analysis: Know when to jump in (or pull out)
If this process lasts more than a day, you may need to rent this stock from an investor who has it and return it after repurchasing it. But if it is a day trade operation, this isn’t necessary.
After all, in theory you will buy the stock and clear your debt almost immediately within a few minutes.
3. Leverage your investments in the futures market
The futures market is another fantastic opportunity on the stock exchange, where it is also possible to leverage your investments.
Instead of buying shares, you buy contracts, which can be commodities, indices, or even dollars. This means that you will be investing in products consumed worldwide and not just a specific brand.
The most fantastic thing about this market? When investing in futures contracts, you can leverage up to 30x your capital–a much higher limit than with regular stocks.
Imagine this: with only €1,000, you could obtain the same result as those who invest €30,000.
Be aware of the risks of leverage
Of course, because you are investing a value that you do not have, a.k.a. contracting debt, this strategy also poses greater risks. Simply put, you will be accepting a greater risk, in search of a greater profit.
But don’t worry! Usually, operations that allow leveraged investing are very fast and therefore have minor fluctuations, such as 0.5% or 1%. Therefore, if you do things correctly your profit or loss could be relatively small per operation.
You can be very successful if you do things correctly in several transactions. Imagine carrying out two or three operations and making 1% profit per day. At the end of one month, your capital will have multiplied in an incredible way.
Bear in mind that leveraged investing provides not only greater profits, but also greater risks. This is why it is necessary to seek knowledge and rely on good analysis from experienced professionals, who can put you in the best probability scenario.
It is also key to use the best tools available at your disposal. Luckily for you, the FlexAcademy library has your back! Check the rest of our articles to learn more about investment strategies.
There are no comments for this story
Be the first to respond and start the conversation.