How to Profit from Short-Term Investments
- 1). Decide the time frame that you consider "short term." Day traders may hold an investment for only a few minutes or at most a few hours, rarely a full day. Short-term investments in futures, options or penny stocks may last a few days or weeks at most. Other short-term investments can last a few months, such as bonds, notes, or a different stock-trading strategy. In general, the shorter the term, the more you'll need to watch your investments and be involved in buying and selling.
- 2). Decide the risk level you're comfortable with. If you're investing money that you could afford to lose (even if it would be painful), you may want to look at short-term investments like options, futures, Forex or penny stocks, that have a chance for the highest profit as well as the most risk. If you can't afford to lose the principal, looking for money market funds, short-term CDs, treasury notes, or bonds maturing soon, are your best choices beyond a savings account. In between those two extremes, stocks that you plan to hold only for a few months, that are priced above the penny-stock range, may provide slightly more return for slightly more risk.
- 3). Narrow your interest down to a particular kind of short-term investment to study. Unlike long-term "buy and hold" strategies, short-term investments require more decision-making and therefore more knowledge from the investor, because of the frequent decisions necessary. However, you can also use the knowledge of others, whether it's a computerized Forex trading system or an investment adviser at a brokerage account, to make the decisions for you. Low-risk short-term investments such as money-markets or bonds held to maturity require less study and skill, since you can estimate your percentage profit in advance and the only goal is to choose the best return among many options.
- 4). Research the short-term investing strategy you've chosen and choose a low-cost broker, since commissions will add up if you buy and sell often. Hundreds of free articles on investing topics are available online, in addition to books and other publications. Even if you plan to rely on others for day-to-day decision making, you'll still need to make sure their advice is trustworthy and will earn a profit for you.
Short-term trading systems for Forex, penny stocks, futures and options abound, and before trusting your money to any one of them, see if you can test them with "paper trading," or a dummy account that follows the buys and sells without actually risking money. The shortest-term trading, lasting only minutes, is akin to gambling and requires a similar combinations of skill, fast-thinking (or computerized strategies) and luck.
For low-risk short-term investments, there's less strategy involved and you can choose the highest interest rates offered and invest in them without testing in advance, since the chance of losing your money is minimal. - 5). Fund your account and purchase the investments you've chosen. If your trading strategy works, the advantage of the short-term investments is that you'll know quickly, and can adjust it as necessary.
