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Wealth Management

HOW TO SUCCEED IN FINANCIAL TRADING

by Paddy Osborn, Academic Dean at London Academy of Trading

 

Trading financial markets is not easy – and anyone who claims that there are guaranteed profits just waiting to be claimed is simply not telling the truth. Successful trading requires hard work and commitment, but also a good understanding of financial markets and how they work.

 

There are many different ways to analyse markets for speculation. You can look at fundamentals, politics or macroeconomic data to make your decisions, or maybe analyse charts and technical indicators. Whatever tools you use, there are some simple rules that you should follow to enable you to be the best trader you can be.

 

Paddy Osborn

Firstly, work hard! As in any walk of like, the harder you work at a skill, the more proficient you become, and trading is no different. There’s no short-cut to becoming a consistently profitable trader. You need to acquire the relevant knowledge, learn the practical skills, and then practise applying them (ideally with some guidance from an experienced trader or mentor) on a demo account. Only once you have a structured process in place should you start trading with real money.

 

As you progress through your training, you will build self-confidence, which you will need to pull the trigger on your trades. Believe in yourself and your ability. Once you have taken the time to develop your trading strategy, you shouldn’t be afraid to take (controlled) risk in the markets. As your experience grows, you can use your successful trades to reinforce your self-belief.

 

It goes without saying that, in order to acquire the required knowledge and skills, you need education. It’s actually possible to get lucky and make money from trading without really knowing what you’re doing, but very very few people actually achieve this. Early success – perhaps due in a large part to luck – can actually be very damaging, since it tempts people to increase risk without control, and take short cuts instead of dedicating time and effort to get a proper education. Nobody – even clever people – can learn to become a successful trader over a weekend! You need to commit time and effort to learn the skills (and practise them) to recognise how to do things right.

 

As part of the learning process, a mentor can be an extremely valuable asset. There are thousands of hours of online videos explaining how to trade financial markets, but if you don’t get feedback on your trading as you start to apply your new-found skills, you could be applying the rules wrongly without even realising. You should find a role model or mentor whose advice you trust. Don’t just ask them for trade recommendations. Ask them about their trading process; how do they approach new trades, what rules do they follow, how and when do they enter the market. Getting feedback on your performance is one of the most efficient ways to identify your weaknesses and develop your skills as a trader.

 

Once you’ve developed the required skills and have started to trade, you need to take responsibility for your actions. Some traders are quick to brag about their good trades, while blaming their losses on bad luck or difficult markets, often seeing themselves as victims. All traders lose money from time to time – it doesn’t make you a bad trader. But if you blame “the market” for your losses, then you won’t be able to recognise your own failings. You need to be honest with yourself about your trading decisions. If you fail to accept responsibility for mistakes, then you’ll keep making the same mistakes time after time.

 

This leads to another rule – learn from your mistakes. Everyone makes mistakes, but successful traders learn from their mistakes and rarely repeat them. Losing money on a trade can be painful, so it’s human nature to try to minimise this pain by brushing these bad trades under the carpet. This is the worst thing you can do! You’ve paid out some money (by losing on the trade), so make sure to get some value from it. Go back and review each trade. Are you following your normal processes? Should you have taken the trade in the first place? Could you have avoided or reduced this loss? Would you do things differently next time? This five-minute review at the end of your trading day may be the most valuable five minutes of your day.

 

Aside from needing fundamental and technical knowledge, trading is also an emotional exercise. Failing to maintain psychological control is the number one reason that traders fail to perform to their potential. Internal pressure to succeed can add to this psychological pressure, so you should try to avoid setting purely monetary goals. If you fix a monetary target each day and your day starts badly, then this pressure mounts exponentially. Instead of setting monetary goals, you should set short, medium and long term process goals. These should be specific and achievable processes which you can execute through all situations. Also, make sure to track your progress against your specific goals, and remember to review your trades to check that you are maintaining your discipline and control. If you can stick to your process goals, then you’ll trade with discipline and the profits will come.

 

Finally, patience is a virtue. Deciding not to take a trade is still making a trading decision. Don’t just enter trades because you’re sitting at your desk and you feel you should be trading. The markets are not going anywhere, and there will always been opportunities in the future. Be patient and wait for the right opportunity. Successful traders have patience, and they understand that true success takes time to achieve.

 

Business

THE SPAC BOOM: WHY COMPANIES AND INVESTORS ARE INCREASINGLY LOOKING TOWARDS SPAC IPOs

Maxim Manturov, Head of Investment Research at Freedom Finance Europe

Special purpose acquisition companies (SPACs) have long been part of the investment landscape, but this market has boomed in recent years. As well-known underwriters and investors show increased interest in the initial publication offerings (IPOs) of blank-check companies, SPACs have been pushed to the forefront of the agenda and there is even discussion around whether these will outpace the traditional IPO. Essentially, SPACs have become a very viable alternative for many private companies.

The SPAC boom is best exemplified by recent research from Refinitiv, which found that

SPACs have raised $79.4bn globally since the start of the year, eclipsing the $79.3bn that flooded into investment vehicles in 2020.[1] In fact, some studies report that SPACs accounted for a record 30% of all industry IPO earnings in 2020 and is already accounting for 54% in 2021, up from 1% in 2014.[2] The SPAC frenzy that commenced in 2020 therefore shows no signs of slowing, with 2021 set to be a record year for SPAC listings.

In light of this, with a long list of SPACs having filed for an IPO in 2021, it is imperative for companies and investors with growing appetites for participation to take a closer look before coming to a decision. So, let’s dive deeper into the rising popularity of SPAC transactions, the traditional IPO vs. the SPAC IPO and the future outlook for the thriving market.

The rising popularity of SPAC transactions

SPACs are non-commercial companies created solely to raise capital through an IPO in order to acquire an existing private company, thus bringing that company to the market. While SPACs have been around for quite some time –entering the investment landscape back in the 1990s– it is only recently they have exploded in popularity, as better-known underwriters and investors started taking part in them. This trend will likely grow as major private equity firms and venture funds continue to form more SPACs.

The reasons behind the rising popularity of SPAC transactions include low interest rates, simplified listing requirements, increased investor participation and the quantitative easing policies that are still adopted by most central banks. SPACs are also a great way to get exchange-listed during increased market volatility, as well as enable existing companies to gain access to liquidity that would not otherwise be available.

Ultimately, there are a range of factors that make SPACs a more sustainable option for raising funds, hence why target companies are increasingly looking towards SPAC IPOs to take them public. These factors, combined with the increasing number of high-profile sponsors entering the SPAC space, have enabled this market to soar. But will SPAC IPOs really outpace traditional IPOs this year?

The traditional IPO vs. the SPAC IPO

Traditional IPOs and SPAC IPOs are both subject to the same set of rules when taking a company public. When delving deeper into the benefits of these investment vehicles, however, there are notable differences. Compared to a traditional IPO, SPAC IPOs offer more certainty regarding the company value and fundraising, since the valuation is fixed through a privately concluded merger.

Alongside this, raising funds through SPAC transactions is one of the quickest ways for private companies who are in urgent need of capital. Getting ready for a regular IPO requires time, from a few months to a year, whereas creating a SPAC can be completed in just three short weeks. The benefits of this pace have been recognised none more so than amongst the ongoing pandemic, hence why investments in SPACs continue to surge.

One potential shortfall to point out, though, is the ability of SPAC IPOs to acquire a private company in the allotted timeframe. Once a blank-check company lists its security information on an exchange, it must complete a merger within three years or risks falling through, which creates added risk for buyers looking to invest.

In a nutshell, while SPAC IPOs can provide greater flexibility, efficiency and speed for target companies, they cannot wholly replace the reliability of traditional IPOs. Companies looking to go public must therefore weigh up the pros and cons of each option in line with their individual goals and capabilities.

The future of the SPAC market

That being said, many experts still believe that SPACs’ popularity will continue to grow in coming years as companies look to raise capital quickly and investors look to actively participate in this craze. This is demonstrated by initial stock market listings in 2021, which witnessed one of the best starts to the year since 2008, thereby highlighting that active participation in SPACs is undoubtedly growing. On top of this, with low interest rates and savings on commuting, food and coffee costs, COVID-19 has triggered an increased interest in investing amongst younger buyers.

But with so many SPAC options on the table, which ones are actually worth investing in?

  • Stable Road Acquisition Corp – Expected to merger with Momentus. Momentus is a pioneer in space transportation and infrastructure technology and is at the forefront of space commercialisation. With an experienced team of aerospace, propulsion, and robotics engineers, Momentus developed a cost-effective and energy-efficient space transportation system based on a water-plasma propulsion technology.
  • Social Capital Hedosophia Holdings Corp. V – Expected to merger with SoFi, a leading next gen financial service platform. SoFi’s mission is to help people achieve financial independence by taking correct money management decisions. This is a one-stop member-focused financial service hub that includes loan refinancing, mortgages, personal loans, credit cards, insurance, and investment and deposit accounts, with over 1.8 million users.
  • Property Solutions Acquisition Corp – Expected to merger with Faraday Future.  Faraday Future is a global smart mobile ecosystem company, the mission of which is to change the aspects of digital life when it comes to cars. The company already has a powerful portfolio of revolutionary value-added technologies, protected by nearly 900 patents worldwide.

The future for SPAC transactions is therefore likely to be bright as private companies increasingly look towards SPAC IPOs as a viable option to go public. With a growing number of players entering the SPAC space, the SPAC frenzy is only gathering pace.


[1] https://www.ft.com/content/321400c1-9c4d-40ac-b464-3a64c1c4ca80

[2] https://seekingalpha.com/news/3656255-piper-sandler-spacs-look-bubble-like-but-may-boost-goldman-sachs-and-evercore

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Business

HOW NEW DATA SOURCES CAN ACCELERATE OUR JOURNEY TO RECOVERY

Jonathan Westley, Chief Data Officer, at Experian UK&I

With the growth of e-commerce and streaming of everything from music to films, online subscription services have become increasingly popular. According to research published by Barclaycard, Britain has become a nation of super-subscribers – spending over £550 a year on new digital services and signing up to an average of seven services per household.

Although interesting to see, these numbers aren’t surprising. There’s no doubt that we are spending more and more of our time online. The Covid-19 pandemic has only served to accelerate the digital disruption we’ve seen across all sectors in recent years.

What’s less obvious is the impact that this behavioural change is having on the provision of financial services. There is a big opportunity to utilise the financial information created through the payment of subscriptions and other digital services to help lenders to understand affordability in a more robust and intuitive way. One which is more appropriate for the digital age.

By building out financial track records with these new sources of information, lenders are able to understand credit risk in a way that is fit for purpose in a rapidly changing marketplace. For the individual, this has the potential to help them access better deals on credit, even when there’s a lack of traditional information to strengthen their credit history.

Challenges to greater data sharing

While the above provides a compelling case for greater data sharing between consumers and financial services organisations, we know there are several entrenched challenges to this.  

Firstly, people will only share information if they fully understand the terms of the exchange and place a high enough value on the product or service they receive in return. This value must also outweigh any risk they perceive in sharing. This delicate balance is known as the ‘consent equation’.

While sharing information on their subscription payments could present real value for consumers, enabling them to access more affordable credit, these benefits need to be communicated clearly. Organisations also need to face the risks that people may perceive in how their data is used, shared or stored, and address these through communications. 

Process or user experience can be another significant barrier to data sharing. While robust security protocols are paramount, organisations do need to consider the journey people must complete to share their information. Make this too arduous, and people will drop out part way down the road. 

Taking the first steps towards the future

While substantial, these challenges are not insurmountable – and the potential benefits to consumers and lenders make overcoming them well worth the effort.

We aim to lead progress in this area with the launch of Experian Boost. The free service uses Open Banking technology to allow consumers to factor information on regular payments, such as their council tax or Spotify subscriptions, into their credit scores. Any information submitted is only used to this end, and to improve rather than negatively impact users’ scores.

In the current context, this information could be vital. While the furlough scheme and its extension over the summer will continue to cushion the financial blow of the pandemic for many, lenders may still see an uplift in the number of people requiring some form of support.

Against this challenging backdrop, there’s even more of a need to make a sound assessment of vulnerability and affordability, which requires a full understanding of a customer’s current circumstances and financial exposure, and therefore the breadth of their indebtedness across all credit commitments.

New data sources created through digital subscription services, as well as those available through Open Banking data sharing, can be harnessed to help develop better credit options for consumers. Experian Boost is evidence of this. The next step of this journey is helping more people to add their own consumer contributed data directly to their credit files and improve their credit scores. By embracing the use of these new and relevant sources of information, made possible through the proliferation of digital services, lenders will be in the best possible position to adapt to the changing consumer landscape and accelerate down the road to recovery.

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