In our previous blog, we discussed the traditional investment products that have been used over the years to grow invested funds. These products have been tested over time and they are reliable for your investments. However, there are new investment products that continue to become available in the market. In this blog, we will discuss some of these contemporary products. 

Bitcoins and Cryptocurrencies

Cryptocurrency is digital cash or digital assets that are used to settle transactions similar to physical money. The digital cash is encrypted to regulate the generation of new units and to verify the transfer of the funds. Though there are many cryptocurrencies, the most common at the moment is Bitcoin. 

The concept of investing in Bitcoin is similar to that of investing in any other asset. You invest in the currency and hope its demand and consequently its value will go up thus making a profit.

The issue with Bitcoins is that like many other new products, there is quite some amount of misinformation and people taking advantage of a lack of knowledge to defraud potential investors. Furthermore, the usage of cryptocurrencies for transacting is still quite low and therefore, much of the demand for the currency is speculative. This has resulted in these currencies fluctuating and being unpredictable, especially for future growth. 

Day Stock Trading

Day stock trading is an aggressive way of trading the stock market whereby you keep buying and selling shares within very short periods in a bid to grow funds more rapidly. Some people offer a service to churn or aggressively trade your cash in the stock market with a promise of high returns. 

In our experience, day trading in the Kenyan stock market is high risk as many factors make our market difficult for day trading. Firstly, the taxes and charges per transaction are quite high and you therefore need high margins to cover these costs and still make a profit. Unfortunately, most counters do not fluctuate much within the short run making it hard to make any meaningful profits. Secondly, most of those who offer to trade your money in the stock market will make a commission every time you trade. So they intend to trade as frequently as possible to grow their commission as opposed to making you money. For this reason, we find that there is a conflict of interest. 

We have seen many investors lose large sums of money to these day traders who promise high returns but will often fall short of their promises. 

Forex Trading

Forex trading also known as currency trading is yet another contemporary investment opportunity that has gained traction with the widespread use of high-speed internet. The forex market is a decentralized market where the world’s currencies are traded. Online trading platforms operated by currency brokers allow individuals to open and trade in multiple currencies from around the world.

Trading in forex entails exchanging one currency for another in the expectation that the price of the currencies will change in your favour and thus make you a profit. For example, if you believe that the US dollar will lose value against the British Pound, you can sell the US dollar against the Pound. If your hunch is true and the dollar continues to lose against the pound, then you will make a profit.

There are various advantages of trading in Forex.

• Online – Online trading has enabled almost anyone to access the over USD 5 trillion a day forex market. This has made the Forex market more liquid and less prone to manipulation. You can also start your practice on free demo accounts and this enables you to try out the market before transacting with your real money.
• Easy to Trade – The Forex market is well advanced and is easy for any layperson to join, learn and start trading. There are tools and training opportunities that make it easy to learn and get started.
• Leveraging – Online Forex is traded using leverage. Leverage means that you get to borrow against the cash that you are trading with so that you can increase your margins. The effect of leverage is that small movements in currency prices result in large changes in your funds. You can therefore make larger profits or lose funds much faster than when trading without leverage.