This is a guest post by Michael Dehoyos.
Trading can be a daunting prospect to someone completely new to it, which is why so many people trust companies to invest and trade for them. However, by giving over your portfolio to a company, you’re also giving up a certain level of control over your own investments.
These days people are increasingly aware of how different trading markets work and are keen to take ownership of their investment decisions. Of course, trading for yourself comes with its own risks, and it might not be for everyone. Here are some pros and cons of trading for yourself as opposed to trading with a bank, mutual fund, or hedge fund.
Pro: More control
For those looking to trade their own stocks, increased control is the greatest benefit. When you manage your own portfolio, you can make instant decisions about where your money goes, when to buy and when to sell. This has become even more true with the advent of online trading, when you can choose to restructure your investments any time of day from almost any device. Compare this to having your money with a full service broker or money manager, who would require a discussion or an appointment in order to initiate a trade.
Con: Too much control
The flip-side of having increased control on your investment is that trading becomes an obsessive habit. By being connected to your portfolio 24/7 on your smartphone the decision to buy or sell is always there, which can lead to you overthinking your investment portfolio. Financial advisors have shown that less is more when it comes to trading, and obsessing over your portfolio in minute detail might actually hurt your chances of earning more. That’s why, if you’re going to trade for yourself, self control is the first thing you need to learn.
Pro: Lower fees
By taking the reins of investments yourself you’re avoiding any fees associated with full service stockbrokers. Brokers fees vary depending on the company, but all will have some fee associated with buying, selling or exchanging stocks. By managing your own investments, you’ll be avoiding the lion share of trading fees.
Pro: Learn from your mistakes
“Anyone entering into trading thinking they’re going to win every time is kidding themselves,” says Karyn Price, a business writer at Australia 2 write and Writemyx. “Trading is about taking risks, and you can’t take risks without making mistakes sometimes. The good thing about trading for yourself is that you know all the painful details about the mistakes you make. By analysing those mistakes and changing your strategy going forward, you can become a better trader.”
Con: Less knowledge, more work
Amelia Inglis, a marketer at Brit student and Next Coursework, points out that “Brokers are in a job because they know their stuff. They’ve usually gained a level of recognition as someone who understands the market they trade in and have a track record of successes that outweigh their failures. That track record comes with experience from having made mistakes in the past. Someone trading for themselves does not necessarily have that experience, which means they will have more research to do to ensure they aren’t missing opportunities.”
Pro: Own your profits
There’s something uniquely satisfying about earning profits for yourself. This is related to the above points about more control and lower fees, but it goes beyond that. Many traders enjoy trading independently because they can see the direct fruits of their labor. If you do the research, take the risks and learn from your mistakes, you will likely see dividends that came from you and you alone.
Con: Too much, too fast
By having no checks and balances on how you trade, many independent traders will make the mistake of jumping in too quickly. It’s all to easy to invest huge amounts of money with the click of a button and no human being to ask you if you’re sure this is a good idea. Again, we’re back to the point about self control: only enter into independent trading if you’re confident you can do so sensibly.
Michael Dehoyos is a business writer and editor at Dissertation writing service. He assists companies in their marketing strategy concepts and advises part-time on trading practices. He contributes to numerous sites and publications, including Academic brits and Research paper help.