Investments take many forms, whether you own a property, jewellery, collect stamps or have a pension plan, anything that can hold its value can be seen to be an investment.

The return of an investment can be seen in two ways, the increase in the value and the regular income generated from holding it. All asset classes can decline in value producing a negative return and all assets can generate income by the process of lending. Different investments carry different risk profiles because of various factors including type, size, and number of participants. This together with the amount of gearing used go to make up the risk profile and the amount of volatility an investment has. This is before you add in the sentiment on an asset by the effect of news etc.

One thing common with traditional investments like property, vehicles, private businesses, art, and jewellery etc. is that they can not be readily bought and sold, it takes time and the more time involved in completing a transaction the bigger the difference between the buy and the sell price can be, thus the larger the costs of the transaction.
In comparison, paper investments like securities and derivatives are transacted centrally on exchanges and these days electronically thus making transactions so much easier, the easier the transaction the more people will trade it, the more people that trade it the smaller the difference between the buy and sell price and the overall cost of the transaction.

The main difference between these two types of investments is that one is physical and one is a paper contract. Generally the costs of a physical transaction will be more than the costs of transacting a paper contract. The type of people that take delivery of a physical investment tend to be longer term investors. The type of people that trade paper contracts never usually take delivery of the physical and tend to be short term speculators.

TRADING STYLES

Investing

Investors take the view that over the long term an asset will usually increase in value. Most fund managers and especially pension fund managers use the buy and hold strategy, increasing there holdings when prices dip and decreasing there holdings when assets appear to be overvalued. Investments can be a number of weeks, months or years. The return on an investment that is held for years much depends on the timing of when the asset is liquidated, this is most apparent with a pension fund as from the start there is only a small amount invested so market volatility only has a small effect but towards the end as the fund matures the timing of withdrawal is critical as you have the maximum invested and market fluctuations have a big impact.

Position Trading / Swing Trading

Position traders take a view of an asset in the short to medium term, typically from few days to a few weeks and will look for opportunities in price movement during that time whether from a strengthening or weakening market or a range-bound sideways market.

Daytrading

As the name suggests this is trading actively intraday, usually starting the day and ending the day with no positions, thus avoiding overnight fees. Daytraders can range from doing a handful of trades a day to scalpers who typically do 100 to 200 trades in a single day. Traders can benefit from either a market rising or falling as long as the market moves in their chosen direction. Daytrading certainly offers more trading opportunities as it shows every micro turn in the markets but as to which style carries more risk that is open to debate.

Technical Analysis

Technical analysis is the study of price charts and the patterns they produce. This technique has become very popular in the last 20 years with the power of the computer to display mass amounts of data. A pure technician will have the view that all the information that is needed to make an investment is in the chart of its price.

Fundamental Analysis

A fundamental analyst is someone that can read deeply into company accounts and understand the direction the company is headed and the impact that has on income and share value. For this type of analysis the price chart comes secondary.