"Buy and hold" vs. active investment management - Marcin Tuszkiewicz, Investio for CMC Markets

And what if you are not interested in holding the action for months?

Not always our character traits go hand in hand with holding companies and "doing nothing". The strategy indicated above limits the time necessary to dedicate it to a minimum. At the same time, it is well suited to the stock market, where trends prevail to allow it to be used.

Not everyone thinks about investments as saving for the future. The goals and expectations of each market participant are different. That is why it is so important not only to choose the right strategy, but also the market on which the transactions are undertaken.

For people who are actively approaching investments, contracts for difference (CFDs) and financial leverage. It makes it possible to invest with a multiple of the capital held (up to 100 times, which is regulated by the Polish Financial Supervision Authority).

Of course, such investments differ from the "buy and hold" strategy, primarily in terms of the duration of the transaction and the way it is carried out, which must be much more precise. A very important aspect is adherence to the principles of capital management.

Use of a lever

Leverage is a tool that may or may not be used. In the example below, the transaction was concluded on the CFD for shares of KGHM Polska Miedź.

When buying 100 KGH shares on the cash market at a price of PLN 107,05, an amount of PLN 10 is required to be deposited in a brokerage account. The selling price is PLN 705, so the realized profit is PLN 114,05. By buying the same number of shares via CFDs, the deposit that the broker will secure for this transaction will be 700 times smaller, i.e. PLN 10. However, the profit will not change and will also amount to PLN 1.

Without leverage, the result on this transaction would be “only” 6,5%. Thanks to the available leverage of 1:10 in CMC Markets, the same investment yielded 65% of the margin that was secured against the position. Although it is much better to give the percentage profits on the total amount deposited in the account, and not only on the margin deposit under the position. You should also remember to select the size of the transaction in such a way that the possible loss is limited to the maximum acceptable level.

A rationally used leverage allows for a more reasonable placement of its funds. A similar scheme works on commodities or raw materials, allowing investors to benefit from price movements even with small capital. Even with 100, you can increase your capital, which should not be thoughtless, due to limited possibilities and high risk.

CMC Markets training

To make your investments well-thought-out and reasonable, CMC Markets in cooperation with Investio organized a series of free workshops in the largest cities in Poland. During them, Marcin Tuszkiewicz will present the assumptions of three strategies that he uses in the markets:

• for a stock market investor whose results are shown above,
• for the daytrader, which allows for the rational use of financial leverage and the benefits of the currency market or stock market indices,
• and the "swing" strategy ideally suited for commodity markets, raw materials and CFD for stocks.

The information provided does not constitute an offer or recommendation to purchase or sell financial products. In the case when the historical investment results of financial products are presented in the material, there is no guarantee that they will be achieved in the future. By investing with the left you can lose more than a deposit. More in the risk information on the website www.cmcmarkets.pl. Advertising material of CMC Markets UK Joint Stock Company in Poland, with registered office at ul. Emilii Plater 53, 00-113 Warsaw, KRS 0000575015, NIP 1070035062.