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Short term investments: what are they?

Short term investments: what are they? Contents
  1. What Are Short-Term Investments?
  2. Features of short-term investment
  3. Investing money for a short term on Forex
  4. Where to invest in 2021
  5. Tips for Beginner Investors on Short-Term Investments
  6. Classification and types of short-term investments
  7. Is it possible to use CFDs in the short-term investments?
  8. Commonly used CFD investment strategies for short term
  9. What are the risks of short-term investments?
  10. Benefits of short-term investments
  11. Disadvantages of short-term investments
  12. Conclusion
  13. FAQ: How Short-Term Investments Work

What Are Short-Term Investments?

Short term investments are very popular financial instruments today, which attract both novice and advanced investors. The special appeal of short-term investments is associated with the ability to get quick potential profits and a low entry threshold.

How can short term investments be defined? Short-term investments are investments of various types of assets in projects, financial instruments, investment assets capable of ensuring the achievement of the investor's investment goals in a period of up to one year.

Features of short-term investment

Short-term investments assume that after investing funds, after a year, the investor gets not only the return of the invested funds but also a percentage of the initial payment. The indicators of liquidity and profitability of quick investments directly depend on the level of risk and, accordingly, on how promising the form of investment is chosen. Traditionally, rates of return range from 5 to 25%.

Besides, such investments have one more fundamental difference. Objects of short-term investments are always represented by highly liquid assets.

Investing money for a short term on Forex

The Forex market is the most favorable place to generate income from short-term investments. In this market, the investors determine the duration of the investment themselves. The market works with currency pairs, the exchange of which and quotes are provided to the investor by the organizer of the trading platform, and he also pays the investor income in case of successful transactions.

The investor's task is to choose a currency pair and decide when to start exchanging one currency for another and when to close the deal, that is, to stop the exchange. The exchange rate of currencies on the Forex market is in constant motion and is reflected in the terminal in the form of trends and other graphic materials. The technical analysis and the fundamental analysis allow the investors to carry out exchange transactions to their advantage

Where to invest in 2021

Popular options for short-term investments:

  1. Investing in stocks. To invest in shares, traders need to choose a company that is confident in the market, analyze its profitability, and find out if there is a growth perspective for its stocks. 
  2. Investment in precious metals. At all times, people have sought to invest in gold and silver. This is still relevant now. But when buying these precious metals, remember that they will not bring a very large income. But the main advantage of such investments is their safety, since gold and silver, although slowly, still grow in price.
  3. Financial investments in government securities. The state offers to purchase treasury bonds, which can be sold in the future. This option assumes minimal risks, but also minimal income.
  4. Investments in mutual funds. Traders fill out an application for the redemption of a share and after that, they become the owner of a part of the property share fund of a certain organization. The income of the enterprise is divided among all shareholders. The money can be withdrawn within a month after the investment.

Tips for Beginner Investors on Short-Term Investments

Today there are many different blogs and forums where investors share their experience and also many articles where there is numerous advice to people who decided to start building an investor career. All the significant recommendations and advice can be assumed into the tips of the following list:

  • It is best to gain experience using the demo account option and, accordingly, not using all the real savings, but practicing with virtual funds. 
  • Traders need to practice making forecasts, try to develop intuitive flair.
  • It is important to accurately study the news in the financial market, as they influence the price movements.
  • It is necessary to monitor the emergence of new companies and projects and their activities, especially for foreign enterprises.
  • It is better to invest in several assets. This helps to greatly diversify the investor's portfolio and accordingly manage potential risks.

Classification and types of short-term investments

There are several criteria for classifying short-term investments. Most often, such investments are divided according to the materiality of assets into real and financial ones.

  • Real short investments are associated with the acquisition of tangible assets. For example, with real estate transactions or bullion of precious metals. 
  • Financial short-term investments are associated with intangible assets. For example, with the placement of funds in banks, mutual funds, microfinance organizations, as well as the purchase of shares on the stock market.

Short-term investment is also classified according to other principles: the level of riskiness, investment period size, and the liquidity of the selected instrument. 

Is it possible to use CFDs in the short-term investments?

The question of whether CFDs (Contracts for Difference) are suitable for short-term trading is quite relevant. It is widely believed that CFDs should not be used if you intend to hold a position in the market for a very long time. The reason is that interest is charged on the contract amount if you go long. Interest will increase if you hold CFDs as investments and not just as trading instruments. Overall, CFDs are actively used by traders who invest short term, since it is an effective trading method.

In practice, CFDs are powerful and flexible, whatever the trading strategy is. CFDs are also a leveraged product, so if traders go long and their market predictions are correct, they can make a significant profit over their initial investment but it has to be taken into the consideration that trading with leverage may bring significant losses as well.

Of course, short-term CFD trading is also a great way to make money and you do not need to interfere with calculating the profit required to offset interest expenses. Short-term investors naturally focus more on technical analysis rather than fundamentals, as in most cases this is the determining factor that will identify the direction of the market in the short term. CFDs are always good for short-term investing, especially when traders consider their flexibility and the many different markets and underlying securities available from only one CFD financial service provider.

Commonly used CFD investment strategies for short term

As mentioned before, CFD trading is a relevant short-term investment method. In order to use as many financial opportunities as possible, traders prefer to stick to popular trading strategies. Such strategies help traders conduct a thorough analysis of the market and correlate their behavior.

Here are some commonly used trading strategies for short-term investments in CFDs:

  • Day trading, which involves opening and closing a position within one day. This is a traditional scheme for Forex traders, but it can also be used in other financial markets. 
  • Swing trading, which focuses on technical analysis based on volume, trend, momentum, and other indicators to hold a trading position over multiple sessions. This can take days or weeks.
  • The scalping strategy, which involves several trades during one trading day intending to make a small profit. However, the overall amount of potential profit can be high.
  • The trading, which allows investors to profit from up and down trends by analyzing the momentum of an asset.

What are the risks of short-term investments?

Short-term investors are exposed to potential interest rate risks. Interest rate risk measures the effect of changes in interest rates on the value of the initially invested funds or the return on investment. However, different types of investments have various levels of risk. For example, CFDs on some assets are considered low-risk short-term investments.

Benefits of short-term investments

  1. Relatively small investment capital
  2. Fast profit-making period
  3. Opportunity to invest in several assets at once, 
  4. Diversification of the investor's portfolio and the level of investment risks
  5. High level of liquidity

Disadvantages of short-term investments

  1. Possible low level of profit, since the size of investments, is low
  2. Potential risks
  3. Dependence on the political situation 

Conclusion

Short-term investments are investments in assets with a return period from several days to several months, but less than one year. Investing in the short term can be quite risky, but a rightly chosen strategy can be a way to generate potential profit If you carefully study all the aspects and consider all the nuances of the short time investment, the situation in the financial market can be predicted in a way, and if you diversify your assets, you can increase both the level of income and the level of security. This way you can gain experience for really big deals.

Short-term investments, with the right approach, can help traders get a return on investments. The investor's task is to find the optimal balance between the profitability and risk of the selected instruments. 

InvestLite is a financial service provider that covers global markets, and which offers the opportunity to trade with CFDs on the, making both long and short-term investments. Here, at InvestLite, we provide all the needed conditions, including high leverage, tight spreads, and strong customer support for making the trading experience of our client productive.

FAQ: How Short-Term Investments Work

What are some examples of short-term investments?

The most common examples of short-term investments are CDs (certificates of deposit), money market accounts, high yield savings accounts, treasury bills, and government bonds. These investments are considered high-quality and highly liquid assets for investing money for the short term, and they are also low-risk short-term investments.

How do short term stocks make money?

Investing in stocks for the short term can be very profitable. To invest money for the short term in stocks, traders have to choose a prospective company, which is confident in the market, and analyze its future profitability, and find out if there is a growth perspective for its shares. When the shares go up in price, investors gain their profit if they have managed to correctly forecast the price change.

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