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Wealth Management

MANAGING VOLATILITY: HOW TO PROFIT FROM STOCKS WITHOUT COMING UNSTUCK

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Dáire Ferguson, CEO, AvaTrade

 

The last few years have provided us with a series of unpredictable political and social events that have led to high levels of volatility in the stock markets. In the past four years alone, we have witnessed the Brexit vote in 2016, the inauguration of Donald Trump’s presidency in 2017, and a global pandemic in 2020. In each case, these events have gone against expectations and provoked wild market movements.

These are certainly challenging times, but current events offer traders equipped with the right knowledge and tools an opportunity to profit handsomely. Of course, volatility is a double-edged sword: traders can just as easily incur losses. So how can they capitalise on the opportunities while managing risk and protecting their assets?

 

Why volatility is lucrative

When we consider recent events that have impacted the global stock markets, traders have been given an abundance of opportunities to capitalise on the volatility. Stock prices for companies have risen and fallen astronomically owing to the far-reaching effects of the pandemic, where some have coped better than others.

Social media is one area where investment is particularly interesting because these companies are liable to grow rapidly. For example, despite already being well-established as one of the social media giants, Twitter saw its shares almost triple in value on the AvaTrade platform between July 2018 and July 2019 jumping from just above US$15 to a peak of around US$45.

When we consider recent weeks, traders could have made a generous profit on Snapchat had they bought its shares ahead of the announcement that it would stop promoting posts from US President Donald Trump. Following this announcement towards the end of June, Snapchat’s shares shot up 11% on the AvaTrade platform.

 

Dáire Ferguson

The other side of the coin

On the other hand, not all tech-based companies are finding it easy at the moment. Uber was one of the most falling stocks in the same week as Snapchat rose, dropping by 8.3%. Taxi services have understandably struggled during lockdown, so this is more than likely to be the reason for Uber’s decrease. The ride-hailing company also issued a statement around this time that all passengers need to wear facemasks which, although an admirable safety measure, may have contributed further to its drop in market value, as other taxi companies have not followed suit.

It can be relatively easy to read market reactions in hindsight, as we’ve done here. But doing so in the moment is far harder. Traders could conceivably have purchased stocks in Uber following the face mask announcement in the belief that this decision would encourage better consumer trust in the company and increase its worth. As we have seen, however, traders would have stood to make a significant loss on this call.

Undoubtedly, market volatility can be lucrative, but being able to manage risk is also critical.

 

How to protect assets

While an ear to the ground and a good nose for market movements will serve traders well, not everyone can rely on years of experience, nor can they necessarily be confident in any given situation, particularly given the unpredictability of today’s markets. To address these worries a number of risk management tools have been entering the field, offering an extra layer of security for traders. These tools can be useful for both experienced traders wanting to execute strategies in riskier climates and those relatively new to the trading world looking for additional support.

There are a number of different forms of protection available to traders. For instance, AvaTrade is one of a number of brokers that offer “take profit” and “stop loss” orders. These see traders define price points at which the system will automatically sell their asset in order to lock in profits or cut losses. This can be a valuable tool for ensuring traders make rational decisions and don’t hold onto positions for too long, risking a favourable position going sour or a bad position getting worse.

Other tools, such as AvaTrade’s AvaProtect, even go so far as to offer total protection against loss for a defined period. This approach sees the trader simply check a box to take out protection on an asset in exchange for a small fee based on the size and risk of the position. This means that if a strategy does not perform as well as initially expected, traders can recover any and all losses on the trade, minus the initial cost of taking out the protection.

As with every sector, advancements in technology continue to evolve in the trading space and, with access to the right tools, traders can feel confident that they can profit from the market without taking on too much risk.

Certainly, 2020 will continue to be a tumultuous and challenging year, especially economically. Upcoming political events, such as the US elections and a possible Brexit trade deal later in the year, combined with the ongoing impact of the coronavirus, are likely to keep triggering market shifts. For traders – armed with the tools to keep a tight grip on risks – this will mean further opportunities to profit.

 

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An Entrepreneur’s Guide to Investing in Bitcoin

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By

Marcus de Maria, Founder and Chairman of Investment Mastery.

 

Over recent years, Bitcoin has been steadily growing in popularity among today’s investors. At the same time, there has been a lot of debate about Bitcoin, and other cryptocurrencies, and their value.

Its supporters argue that it is the future of currencies and investment; its critics are adamant it’s not all it’s cracked up to be and might not make the big profits people are expecting.

To better understand its true stature in the market, we need to look at recent developments. For instance, Bitcoin’s valuation has risen by more than 763% in just one year, easily surpassing the rise in the traditional stock market.

With more and more people buying Bitcoin, it is now gaining the attention of the mainstream financial institutions and platforms, when once Bitcoin was derided, joked about and said would never last.

Marcus de Maria

Fast forward twelve years since its’ launch, and we have Tesla and SpaceX mastermind Elon Musk recently announcing that his car empire will not only buy $1.5 billion-worth of Bitcoin, but will accept cryptocurrencies as payments in the future.

And well-known FinTech companies such as Square and PayPal have also announced their intention to support Bitcoin in the future.

Despite this, the most important Bitcoin development is, perhaps, the recent initial public offering (IPO) of Coinbase Global, Inc. (NASDAQ: COIN), today’s leading cryptocurrency exchange platform.

There is no doubt: Bitcoin is gaining momentum. Recent developments have contributed to the sharp rise in the value of Bitcoin, and asset proponents believe this is just the beginning.

 

Bitcoin background

Bitcoin was created in 2008 by a programmer, or group of programmers, under the pseudonym “Satoshi Nakamoto”. Twelve years on, and the true identity of Bitcoin’s inventor is still unknown, adding a little mystique to this already enigmatic entity!

Essentially, Bitcoin is a cryptocurrency. A cryptocurrency is a virtual “coins” or “tokens” and used in digital cryptocurrency systems instead of physical cash.

Similar to physical fiat currencies, digital coins have no intrinsic value, and are not backed by gold or silver.

Bitcoin is one of the most widely used of the thousands of cryptos now available to the investor.

Considering that the great attraction to crypto is that it’s a decentralized currency, thousands of different types of coin in “circulation” is a big giveaway to how popular it is among users and investors.

What gives Bitcoin its value is the fact that there will only ever be 21 million bitcoins “minted” or “mined” to give its proper definition (more on this in the future).

It’s this scarcity that provides the value, although one Bitcoin can consist of multiple denominations, the smallest being a “satoshi” which is 0.00000001 of one Bitcoin (or BTC as it is also known).

 

Bitcoin & The Blockchain: How does it work?

Bitcoin exists solely on the “blockchain” in “wallets.”

A wallet is the digital equivalent of a traditional bank account for fiat currencies such as dollars, sterling, yen, etc.

The blockchain is a public ledger that is totally transparent and accessible to everyone who uses the blockchain and bitcoin, and now any crypto that is in existence.

Transactions on the blockchain are “peer-to-peer”, meaning the transaction doesn’t go through a “middleman” (i.e. third party that would normally charge a fee for making the transaction).

Crypto transactions also undergo thorough verification and confirmation.

Crucially, every transaction and record of bitcoin activity is encrypted which means no one knows who owns any one bitcoin or where it goes to and from, unless they publically declare it (although the identities can eventually be detected under special police powers in cases of suspected fraud).

Only the transaction itself is recorded and is made visible to anyone.

That is why Bitcoin is a cryptocurrency (or crypto), because it has an extremely high level of privacy to it via cryptography.

“Crypto” comes from the Greek word “kryptos,” meaning hidden.

Bitcoin wallets operate via secret key.

This key is used to “sign” transactions. It provides mathematical proof that the transaction has come from your wallet (or owner of the transacting wallet).

This secret verification stops the transaction from being tampered with once it has been issued.

All transactions are confirmed and appear on the block chain network within 10-20 minutes.

It is this security and the fact YOU – and not the banks – are truly in control of your digital money that is so appealing to users and investors alike.

 

What to consider when investing

Firstly, and arguably most importantly, is risk-factor. Investing in Bitcoin as an individual is a lot less risky than investing as a business.

The mentality must be, ‘this is my business’s money. I won’t speculate with my business’s money, and I am not going to risk my employee’s livelihoods. Yes, I would be crazy not to invest but it would be crazier to risk it all.’

It’s very easy to go all-in and invest a large sum of money when you have it, but that is not really a sensible strategy.

So, to start with, entrepreneurs and business leaders should consider the risks, diversifying their portfolio and starting small.

 

Other Bitcoin Investment Options

There are different options when it comes to investing in Bitcoin.

First, you can invest in a company that uses Bitcoin technology so you will be exposed to it without purchasing it directly. When the value of Bitcoin goes up, the company shares go up too, providing a return on your investment.

I can’t invest in Bitcoin through my ISA, but investing in a company such as Block (previously known as Square) means I have an indirect tax-free investment opportunity in Bitcoin. Investing in a company that utilizes Bitcoin can be more volatile than Bitcoin itself, so more money can certainly be made.

Investing solely in Bitcoin is different, as it doesn’t move so much in value, but the individual company using Bitcoin can go up and down sometimes by 80%.

Buying Bitcoins directly from an app like Coinbase allows investors to “physically” own the asset.

This is an important distinction to make, as Coinbase allows investors to actually buy Bitcoin and store it in their own crypto wallet. That way, investors will be able to gain access to the coin’s price performance and use it as the currency to make other trades.

Owning a standalone Bitcoin is no different from owning any other currency, except for the incredible fluctuations in value.

 

To invest directly into Bitcoin here’s how to get started:

  1. Sign up to an Exchange
  2. Enable two-factor-authentication for security
  3. Get a Bitcoin wallet
  4. Connect the wallet to a standard fiat bank account
  5. Place your Bitcoin order
  6. Manage your Bitcoin investment

When the set-up is complete, what you really need to consider is, how much do you know? I am a firm believer in spending at least 20 minutes a day educating myself on investing. I’ve seen too many beginner investors ignoring that advice and rushing in without understanding how it all works.

Surround yourself with people that understand crypto investment and dedicate time to reading up on strategies and tips that will benefit all investments you make.

Bitcoin is certainly a crypto asset you should be investing in alongside a diversified portfolio. It is certainly a highly volatile asset with large and rapid price swings, which in turn can offer the potential for large returns but also carries a high level of risk.

Before making any decisions, it is critical that you learn how to invest in Bitcoin responsibly and utilise proven, reliable strategies. Once you feel confident with your approach, take that first brave step.

As Warren Buffet once famously said, “Be fearful when others are greedy, and greedy when others are fearful.”

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Wealth Management

Has London’s IPO market run out of steam?

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By

Rhys Merrett, Senior Account Director, The PHA Group

 

The UK’s transition out of lockdown was approached with a degree of caution. The disruption caused by the pandemic instilled permanent changes to the way in which businesses operate. It also brought economies to a standstill, with the financial services sector attempting to navigate uncertain circumstances.

Positively, the months following the lockdown were marked by a visible surge in investment and spending. Pent-up investment capital was injected into the financial markets via private equity and venture capital funds, while on the merger and acquisitions (M&A) side, domestic and outward M&A deals were on the rise. After navigating the economic uncertainty brought on by the pandemic, the financial services sector bounced back with a hive of activities in H1 2021.

Move forward, 12 months and it seems as though the immediate optimism sparked at the beginning of 2021 has started to wane. A host of new challenges face the UK, some a consequence of the pandemic like rising inflation while others a consequence of actions on the geopolitical stage. As a consequence, there are fears that instead of a full blown recovery from the pandemic, we could instead be on the verge of a recession.

Rhys Merrett

Such a forecast should not be assumed and requires careful assessment. The fact that analysts are beginning to question the health of the economy stems from recent trends. One of these has to do with the number of Initial Public Offerings (IPOs) taking place in the UK.

IPOs are a positive reflection of a healthy market geared for growth. They achieve this by fuelling the growth of economies and broadening the number of investment opportunities on offer for both domestic and foreign investors. IPOs also facilitate innovation, create jobs, promote productivity and provide incentives for private companies to consider a public listing in a particular jurisdiction.

However, a new analysis from KPMG’s UK Equity Capital Markets has revealed that IPO activity in not only the UK, but globally, has drastically dropped. Only 11 companies listed in London in the opening six months of 2022, raising £0.5 billion. This is a huge drop from H1 2021, when there were 40 listings which collectively raised just under £10 billion. Given this 95% decrease, it is necessary to question not only why this has occurred, but whether this is the beginning of a long-term trend for IPOs in the UK?

 

The future of IPOs in post-Brexit Britain

One theory is that the UK’s rules and regulations linked to IPOs are pushing companies to other stock markets, like Amsterdam. Part of this has to do with the long-term future of the UK post-Brexit, and the extent in which it can retain its position as global hub for investment. It will have to deal with increased competition. Scheduled for later this year, the EU listing act will introduce new proposals that give founders the ability to retain more control of their companies while being able to use dual-class share structures.

Another issue has to do with valuations. High profile IPOs of high-growth tech companies like Deliveroo have suffered a significant loss, with the company’s value down 75% since first being listed. Finally, questions over the country’s political leadership have stalled planned public offerings. Most recently SoftBank announced it has stopped working on a London IPO for chip designer Arm as a result of the Conservative leadership contest.

Despite these challenges, it is wrong to assume that the UK is no longer the finance and investment hub it was pre-pandemic, and indeed, pre-Brexit. In reality, all economies around the globe are dealing with the aftermath of the pandemic, including pandemic. There is also potential fallout linked to geopolitical events, such as the Russian invasion of the Ukraine.

Taking a long-term perspective is crucial. For example, research by Datasite, a SaaS provider for the M&A industry, shows that the outlook for dealmakers in the UK is positive. Seven in 10 (71%) are anticipating an increase in activities over the coming 12 months. Looking at the type of deals, half (50%) expect the biggest increase to be in debt financing, while 43% identified transformational acquisitions or mergers.

The fact of the matter is that financial markets are in a period of adjustment. If we look at cryptocurrencies, price volatility and radical swings have resulted in significant losses from the peak prices recorded during the pandemic. The most prominent of these has been Bitcoin. While some see these price swings damaging the long-term usability of decentralised finance, others see this as part of cryptocurrencies evolution as it becomes integrated into the global financial system.

For now, it is difficult to tell what the future has in store for the UK when it comes to IPOs. Once the leadership contest is over, the government will have the opportunity to put together a strategy which ensures London can remain a top destination for public listings. Competition is rife, and should London be able to tackle these challenges head on, it can remain a global hub for not just IPOs, but financial services and financial technology.

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