5 Factors to consider before exploring investment opportunities
Category News
Exploring a new investment opportunity can make for a very exciting process. You'll be learning about whatever market you're considering investing in, planning for your future, and ultimately hoping (and expecting) to turn a profit. But it's also important not to let the excitement influence you, or cause you to rush into something you aren't prepared for.
One way of avoiding that sort of problem is simply to do your due diligence, and cover all the angles before you actually make an investment. Generally speaking, the following are some of the factors you should consider when you're looking into a new opportunity.
1 - Are the Circumstances Around the Opportunity Favourable?
When we wrote about 'What Makes a Sound Property Investment' we gave mention to all of the factors that can surround a property purchase. It's not just the property itself one has to assess, but also the location, the immediate neighbourhood, the specific street, and so on. Both in property investment and beyond, these examples speak to the idea that it's important to look at the circumstances surrounding any investable asset. If you're investing in a company, look at how the whole industry is doing; if you're trading in commodities, assess supply and demand from every angle you can. Basically, always consider the big picture.
2 - Can You Manage the Investment Online?
These days, it's fair to say that most investments are at least possible online. jhu took a look at different online investing ideas for people in Africa specifically, and included stocks, foreign exchange, real estate, cryptocurrency, and micro loans - to say nothing of commodities, which can also be traded online. What that list tells you is that the internet can be used for just about any kind of investment. But you should still make sure that any specific opportunities you explore are open to this method of trading. The convenience and security of reputable online investing platforms simply can't be matched.
3 - Can You Invest With Leverage?
While leverage isn't for everybody, it's certainly an intriguing option for traders to know about before actually buying into any given asset. A long-form post about forex by FXCM explains the idea of leverage with specific regard to forex trading, where the practice is particularly common. As they put it, leveraged trading is a function of high liquidity in a market. In high-liquidity markets, banks and trading platforms will allow leveraged trading - which means investing with an amount greater than what's in your account. The example given is that if you're doing leveraged trading at a 200:1 margin, you can trade with $2,000 by putting just $10 into your account. It's a little unusual at first, but some investors find that it's an effective way of maximising gains.
4 - Is the Market Transparent?
This question speaks for itself, but is absolutely among the most important ones to ask yourself as you assess any investment opportunity. If the market you're entering is not transparent - meaning price movements aren't clear, conditions are unknown, or anything else is somehow murky - you may want to seek investment elsewhere. If you're certain of transparency, however, you can be more confident that you'll be able to manage your investment under fair conditions.
5 - Do You Understand the Asset?
You should also consider the most basic factor of whether or not you truly understand the asset. Forbes communicated this idea in a piece presenting vital questions to ask before investing in a company. Some of the specifics concerned things like assessing the honesty of management, or analysing opportunity cost. Overall though, the underlying point was to make sure you have a thorough understanding for how an asset is positioned, how it's managed, and what its future prospects might be. In other words, it's a reminder to do your research before making any investment.
Author: Andrea Malone
