P2P Lending, short for Peer-to-Peer lending, took off in 2005. It sprung due to many companies’ efforts to deviate from the financial institutions that let them borrow money. Borrowing from banks took about two to three years’ worth of records. And, many companies do not have the luxury of time. Instead, they turn to the Internet for help.
P2P websites allowed private people from around the world to lend money to various companies. For instance, you can lend S$100,000 to a company requiring money for an expansion. In return, you will receive repayments with interest from the company. P2P lending is very attractive to lenders due to the extremely high interest, which is up to 20% per annum.
SINGAPORE: THE ASIAN CENTER
Singapore reigns as a the Asian center for P2P lending due to being a regional hub for trading, a safe storage of precious metals, and a well- established economy. Singapore is appreciated for its direct approach to lending and borrowing as supervised by the Monetary Authority of Singapore. It even issues promissory letters.
Moreover, Singapore has a cash-intensive economy where a great deal of lending happens outside of the banking system and inside of the online platforms.
HOW TO START LENDING
Take Part In A Larger Portfolio
A well balanced portfolio has a mix of low-risk assets and high-risk assets. By nature, P2P lending is a high-risk asset that invites high returns. It can be used to offset the low returns from your conservative assets such as fixed deposits or Singapore Savings Bonds (SSBs).
Seek help from a qualified wealth manager to balance out your portfolio. As a rule of thumb, experts suggest that high-risk assets should not take more than 15% of your portfolio.
Invest On What You Can Afford To Lose
One of the leading advantages of investing in P2P lending is that you can take on small amounts. You can have various investors pitch small amounts of S$1,000 to fulfill your business goals.
Limit your potential losses by investing only what you can afford to lose. Do not gamble your savings away! Any amount that you cannot recoup within two months is too much.
Spread Out Your Investments
Try not to bury your eggs in one nest. As much as possible, choose to spread out your investments in a list of companies found in a P2P website.
If one company fails to repay you, the rest can do better for your account. It is less likely that every company you chose will fail to repay you. Furthermore, a company may repay you less for a long period of time. You have to get some cushion.
Many Singaporeans think that should accumulate a significant amount of wealth before investing in the stock market. Well, let me prove you wrong! You can start investing with as little as S$100.
This seemingly low amount has three investment options. Choose wisely!
OPTION #1: REGULAR SHARES SAVINGS (RSS)
Regular Shares Savings plans (RSS) are also called monthly investment plans. Your mere S$100 can turn into a stock on the Singapore Exchange (SGX) as long as you commit to it monthly. Simply open an RSS plan with one of the four leading banks in Singapore. For instance, you may choose OCBC bluechip investment or POSB Investment-Saver.
The broker for the financial firm will invest your fixed amount based on the instructions you gave. I may instruct the broker to invest to Strait Times (STI) every month or to other bluechip companies. Do your research before spending! The best part about it is that you have full control over your investment decisions. What’s more? Your instructions can be submitted online thru the bank’s platform.
OPTION #2: UNIT TRUSTS
One a scale of risk taking, you may fall under the conservative end. Fortunately for you, you can invest your money in unit trusts. Unit trust works by combining money from a set of investors. The pool of money will then be invested by a professional fund manager. The professional fund manager will have control over your investment.
Nonetheless, you must educate yourself about the type of unit trusts wish to invest in. Unit trusts can be bought for about S$100 in various local banks.
OPTION #3: ROBO-ADVISORS
The future is upon us! Investors can use robo-advisors to allocate their assets in the portfolio. Robo-advisors automatically help investors by tapping on the formulas to manage their assets.
It is a relatively new system in Singapore. Hence, there are only a few brands to choose from. For instance, you may hop to Smartly or AutoWealth. However, the latter has a minimum investment of S$3,000 while the former does not. These two platforms use different algorithms to arrive at optimal solutions. Moreover, these platforms can charge up to 1% per annum for managing your money. The fee is calculate based on the percentage of the total portfolio held in your account.
One of the most important decisions you’ll make in your trading career is deciding how you’re going to trade. You see, that decision will set the tone for the rest of your trading, and it will determine which tools you use, what markets you focus on, how active you have to be, etc.
Now, even though this is an incredibly important decision, it’s something most beginners overlook, and that can be a very costly move. We, together with BullMarketz.com, listed four of the most common types of traders with a description of what sets them apart.
Before we get started, we need to clarify that your trading style isn’t written in stone and you can always change your strategy down the line. Just keep in mind that it’s much easier to trade if you stick with the same type of trading, at least for a few months at a time.
Scalp Trader
Scalping is perhaps the most extreme form of short-term trading there is today. This trading style was designed by day traders that wanted to shorten their trading times in order to benefit from more market movements.
Often times, a position isn’t held open for more than a couple of seconds, and the key to succeeding is to set short-term goals and remain incredibly focused on the smallest price changes. In order to succeed with scalping, you will have to make split-second decisions, and your goal is to make a lot of profit from many small trades.
Many scalp traders focus on volatile instruments such as cryptocurrencies and they often prefer trading with leverage and margins by using CFDs and other derivatives.
Naturally, this type of trading can, at times, be associated with increased risk, but that’s also a part of the attraction.
Day Trader
Day trading is perhaps the most known type of short-trading out there, but it’s also a term that’s often used incorrectly.
Most professional traders that work on their own or handle other people’s’ portfolios are day traders, and the concept revolves around making several well-planned and well-executed trades every day. For you to make it as a day trader, you’ll need an in-depth understanding of the markets you’re trading on, the tools you use, and the analytic strategies needed to place profitable, short-term positions.
What separates scalping from day trading is that day traders often sit around for long periods of time waiting for the perfect market conditions while scalp traders dive headfirst into any potential opportunity. Moreover, day traders need to be incredibly resilient to stress.
Swing Trader
Swing trading is typically perfect for people who don’t have the time or patience to spend all day in front of the computer analyzing assets and markets. Many traders that have regular day jobs are swing traders because it gives them the opportunity to keep their jobs while also trading.
Generally speaking, a swing trader is a position that’s kept open for longer than a day trade. It can range from overnight to a couple of days or even weeks if the conditions are right.
For many beginners, swing trading is the most natural option right at the beginning of their trading journey since it’s considerably less stressful and demanding than both day and swing trading.
Investor
An investor or position trader is someone who buys an instrument with the intention of selling it a few months to several years later. Because of the long time frames, most don’t consider them traders but rather investors, although investing is often combined with short-term trading.
The benefit of long-term investing is that it requires little to no work after the initial investment, and many times the profit is completely passive. Another perk is that long-term investing is suitable for more markets than short-term trading. For example, you can invest in real estate and keep that investment for years, but it’s not as easy to try and day trade on the value of a property.
Investors of any age would do well to revise their current portfolios when they take age, risk appetite, retirement goals, understanding and correlation to other assets in the portfolio into consideration.
The rise of fintech now adds alternative assets like peer-to-peer lending, cryptocurrencies and microloans to the sheer variety of investment options. No longer do investors contend with just commodities, stocks, bonds and real estate.
Investors who accept that there isn’t a one-size-fits-all solution to building a diversified portfolio stand to do better. Here are general principles on finding the asset class that’s right for each investor portfolio.
1. Age and investment horizon
Assets behave as they should when given the time to do so. For example, it’s a well known saying that stocks outperform bonds; which is more likely to be true over a longer investment horizon.
Stocks will almost certainly outperform bonds over the next 30 years, for example, as fundamental facts like inflation make this outcome the most probable. But no one knows for certain if stocks will outperform bonds next year, or the year after, especially with the current Sino-US trade war.
As such, when considering the performance of any asset class, it is important to understand that the more time you give it, the more likely the asset will perform as expected. Wealth managers may tell clients to reallocate from equities to bonds when they get older.
In general, older investors will want to favour fixed income securities, be they perps or simple annuities, while younger investors can be more aggressive. Given their longer investment horizon, younger investors can pursue long-term capital gains, and expect their assets to behave more or less planned.
2. Financial goals, risk appetite and capacity
Personal financial goals is as much about psychology as mathematics. An asset class must meet the risk appetite, or “sleeping point”, to prevent stress or impulsive moves.
For example, there may be many good reasons why cryptocurrency fits a particular investor’s portfolio. She is young, affluent, and such an investment would make up only 5% of her portfolio. But if she is risk-averse and uncomfortable with volatility, the sleepless nights and stress may outweigh the value of the asset, regardless of what the numbers suggest.
If the risk is beyond the investor’s appetite, there is also an increased likelihood that an investor will derail their long-term financial goals. A news report on falling cryptocurrency prices, for example, could set off a panic that results in offloading the asset and incurring a loss.
In general, monthly obligations, inclusive of a home mortgage and premiums for an endowment plan, should not exceed 40% of an investor’s monthly income. Any asset class that pushes beyond this limit is likely taking them past their risk capacity.
3. How the asset class fits within quantified retirement goals
When deciding to invest in an asset class, investors should have quantifiable goals and ways to measure outcomes.
For example, an investor should have a clear idea on how much they need by the age of 65 to retire, with an income replacement rate of at least 80%. Only then is information about an asset class’ historical returns useful.
Investors should also note that every asset class rises in value over time. They need to ensure the returns are sizeable and fast enough to meet quantified retirement goals.
Some examples include microloans tailored towards invoice financing for small businesses. These commit capital for terms of at most 12 months, which limits what investors can lose while ramping up returns to make up for the shorter investment horizon. Late starters with 20 years or fewer to retirement, can consider these alternatives to conventional assets, such as stocks or bonds.
4. Education and understanding of the asset
Investing in a poorly understood asset means ignoring risk appetite, as the investor tends to overestimate or underestimate the risk involved. Without proper education and understanding of the asset, there are also important subtleties within asset classes that investors may miss.
For example, investing in peer-to-peer lending is often perceived as being high risk. But this varies greatly based on the jurisdiction and platform. While China is struggling with it as a shadow banking problem, peer-to-peer lenders in Singapore and Malaysia have seen default rates of less than 1%, even lower than the default rate suffered by some commercial banks.
Many investors in Exchange Traded Funds (ETFS) may have also ignored that a partial replication ETF does not include smaller stocks by market cap. In the event of a small-cap led bull run, this can result in the ETF yielding lower returns than the benchmark.
5. A low correlation to other assets in the portfolio
Before introducing a new asset class, it is best to confirm that there is a low correlation to other assets in the portfolio. Strong correlations might mean a lack of diversification.
For example, an investor who already owns commercial retail properties might reconsider investing in a commercial Real Estate Investment Trust (REIT) that is heavy on malls. A downturn in the retail industry would impact both the REIT and real estate.
The correct mix of assets varies for each individual. But as a near-universal principle, investors should avoid banking too heavily on the same interlinked group of assets. A qualified wealth manager should be consulted on the right mix for each portfolio.
Looking beyond conventional assets
For a truly diversified portfolio, investors should think of asset classes beyond stocks, bonds and real estate. The emergence of fintech has given rise to peer-to-peer loans and microloans which offer unprecedented opportunities for high growth in a low interest rate environment.
Some new asset classes are also structured in a way to mitigate risks found in conventional assets, such as long maturity periods, opaque structures, and high initial cash outlays.
By taking various factors into serious consideration, investors of any age would do well to revise their current portfolios and look for new alternatives that can complement or replace older asset classes.
About the contributor
X.Y. Ng is VP, Brand and Digital at Validus Capital, a leading growth-financing fintech platform that connects accredited investors with growing SMEs across Southeast Asia.
For most rookie traders, it is more important to make profits from the trades. Unfortunately, they do not care for a proper trading plan. They do not understand the importance of executing a trade properly. There are a lot of necessary aspects of proper trading approaches. Just to name a few, you will need proper risk management, market analysis, entry and exit points for the trades. Without a proper plan made with all of the setups and instruments, the traders cannot execute a proper trade. Few individuals may not favor the time it will take to improvise a proper trading plan. Other than trying to improvise the trading plan, it is not possible to cope up with the market conditions. Therefore, you can barely manage any decent profits from the trades.
To improve your senses on the trading plans, we are bringing this article. There will be discussions made based on improvising your trading edge and mindset. The following will contain some segments to let you know about a proper trading plan. You will just need to practice and improvise with demo trading system.
Use every trade setups properly
A solid trade will be executed when the traders have proper trade setups. With risk management policy, you will set the lots and leverage. When the ordering process is done, it will refer the stop-loss and take-profit. To use those setups properly, the traders also need to do a proper market analysis. The supports and resistances are important for the stop-loss and take-profit. To use proper supports and resistances zones, it is necessary to improvise your technical market analysis. To a novice mind, it may be hard to analyze the historical data and create a proper market analysis plan. For those novice traders, there is no other way for the traders to improve their skill with practice.
From time to time, you will improve your edge with proper trade setups. You will just need the interest in the credentials of a winning trade. And always make sure to learn the details of Forex trading Singapore before you consider trading as your fulltime profession.
Improve the market analysis
In the last segment, we mentioned the technical market analysis. The real market analysis does not end only with technical analysis. There is fundamental analysis too. It is needed to understand the possible market condition. The traders will get an idea of possible price movement. Using the news on price driving catalysts, the traders need to assess the situations of the markets. The concept of price correlation is also prominent for those traders who trade with multiple currency pairs. Based on the fundamental analysis, the traders need to use technical skills. To be clear the fundamental analysis is skeptical and the technical analysis is there to testify the possible price change. If you can combine them optimally, the trades will get a proper position sizing.
From there, the executions of the trades will bring a decent profit very easily. Even with a sudden change in the price shift, the trades will not lose too much money. The stop-loss and take-profit will be there to help to close the trades properly.
Test your plans out before executing
Every trade setups and skills needed to be tested with a demo trading account. As there is no hard cash needed to execute demo trades, you can lose uncountable trades. The traders need to use this feature to improve their trading plans. If there is a plan being made, it has to be implemented with a demo trade. Even your market analysis skills need to be tested with the demo trade executions. That way, the live trades will be solid with proper plans. Also, the traders will improvise their trading edge without losing their own money.
Simple plans like using a demo trading account can help the traders to cross the survival stage. It will not take the traders long to manage consistent profits from the trades. If you start from a simple trade setup and grow your plans, it will be very efficient for your business.
