What is a Trading portfolio?
A trading portfolio is a set of financial assets, including stocks, indices, forex, commodities, cryptocurrencies, debts, etc., that a trader buys or sells to earn profit from their price fluctuation.
Have you ever heard a popular phrase, “One should not put all the eggs in one basket?” Portfolio traders generally believe in this phrase. As a result, they try to diversify their trading capital into different assets.
The main aim of the investment portfolio is to spread the trade capital instead of investing all the amount in a single trade to eliminate the chances of big losses.
Components of the investment portfolio
The Financial portfolio is key to risk management, wealth protection, goal achievement, capital appreciation, and proper planning. Before heading to types of portfolios, let’s have a quick look at the components of a portfolio.
Stock
The most popular trading or investment option to add to your portfolio is shares. Shares represent the company; a company raises its capital by issuing shares to the public. One can use these financial assets for both short and long-term investment.
Forex
The scope of forex trading is increasing; the forex market is the biggest financial market. In this market, traders trade, buy, or sell currencies to take advantage of the exchange rate fluctuation. So, a trader can also include forex products like USD, EUR, JPY, GBP, CAD, and many others in their trading portfolio.
A quick glance
A trading portfolio is a set of financial assets that a trader buys or sells to earn profit from their price fluctuation.
- Stock
- Forex
- Commodities
- Bonds
- Cryptocurrencies
- Aggressive Portfolio
- Defensive or Conservative Portfolio
- Income Portfolio
- Speculative Portfolio
- Hybrid Portfolio
- Time
- Financial Instruments
- Knowledge
- Risk
Commodities
One should also include commodities in the portfolio, as due to the supply and demand dynamics, the price of these products keeps changing, making them popular among traders.
One can invest in comex products like gold, silver, platinum, crude oil, petroleum, and natural gas. Also, you can go for agricultural products like coffee, wheat, etc.
Bonds
Government, institutions, or corporations issue debt instruments to raise funds from public knowns as bonds. These bonds come with a maturity date, and investors earn in the form of interest. Bonds can be a great way for investors looking for fixed income.
Cryptocurrencies
The market of digital currencies is growing rapidly these days. Cryptocurrencies like Bitcoin and Ethereum are quite popular amongst investors. These digital assets have given a significant return to traders, even more than the stocks of major companies. So, one can also add these digital assets to their portfolio.
Types of Portfolio
Every trader has their trading style depending upon the trading capital, risk appetite, experience, and psychological factors. Let us discuss the investment portfolio examples to help you in selecting the best:
Aggressive Portfolio
As the name suggests, the aggressive investment portfolio is for exotic or adventurous traders who enjoy taking excessive risks.
Aggressive traders generally invest in highly volatile and risky currency.
Under this, the risk and return associated with trade are high as these assets are susceptible to market conditions.
Also, traders with aggressive portfolios generally spread 75% of capital to equities, 10% to commodities, and 15% to fixed income. It can include high beta value stocks, highly volatile currencies, and commodities.
Defensive or Conservative Portfolio
This type of portfolio is exactly the opposite of the aggressive one. It is for traders who avoid taking too much risk or investing in highly volatile assets.
These traders aim for stable and small returns on their investments. These assets are less affected by the market conditions, and the loss is bearable even in the most unfavorable conditions. Generally, defensive traders spread 85% to bonds, debts, gold, or assets equivalent to chase and 15 to 20% in equities.
Income Portfolio
You may have come up with the traders or investors who enter the market expecting to get a consistent amount on the investment over a period.
For such traders, the income portfolio is the most suitable; these portfolios are designed to get stable and timely returns. Generally, traders spread their capital into government and corporation bonds, dividend stocks, real estate investment trusts, debt securities, and other assets with regular returns.
Speculative Portfolio
Speculative Portfolio is a riskier portfolio, and it is based on the concept of betting. These traders are traded based on speculations, so they are the most risky.
Also, speculative portfolios aim for big and quick returns. Generally, the traders spread capital into cryptocurrencies, forex, and highly volatile stocks.
Hybrid Portfolio
Last but not least is a hybrid portfolio; under this, traders try to balance assets by including highly risky and stable assets. It is among the most suitable portfolio types as it is neither risky nor conservative.
It allows traders to take advantage of numerous trade opportunities and make good returns. Traders generally spread 50% of their capital to fixed returns assets, including debt instruments and bonds, while 50% to equities, commodities and forex.
Factors to consider for building your Financial Portfolio
We have briefly discussed different types of portfolios; however, for selecting the best portfolio, here are some factors you need to consider. Have a look at these factors:
Time
The most crucial element to consider for selecting the portfolio type is time. If you are trading for a longer time frame, you can go for a more aggressive portfolio; however, in the short term, you can not afford to go for aggressive risk as it further maximizes the risk. So, for a shorter time frame defensive portfolio is good.
Financial Instruments
Another important aspect is the type of financial assets; as discussed above, some traders prefer debts and bonds for fixed returns, while some prefer equity, cryptocurrencies, and currency pairs for greater returns.
So, the choice of your financial asset directly impacts your portfolio.
Knowledge
Trading or investing in financial assets requires indept knowledge. Each market has different features and conditions, whether it is stock, forex, or commodity.
Therefore, if a trader wants to spread the capital into different markets, understanding each asset and its market condition is a must; otherwise, it will ultimately impact the trade outcome.
Risk
One of the important aspects to consider for selecting the right investment portfolio is the amount of risk you are willing to take. Traders who want to earn and risk more should pursue an aggressive portfolio.
Traders who want to take minimum risk should go for a conservative portfolio, while those who want to take neither too much nor too little risk can go for a hybrid portfolio.
Final Words
Trading or investing may result in huge profits or huge losses. In the modern time, almost every person wants to increase their sources of income and trading is the best for this.
However, investing your money in a single asset is not a great idea, increasing the chances of huge losses. That’s why you need a good portfolio that helps you make good returns even in unfavorable market conditions.
With a diversified portfolio, you can manage the losses from one trade to the profit from another. There are different types of portfolio investment. However the best possible is one that suits your needs. So, design your portfolio accordingly and stand out from the crowd.
Author of this Post
