Passive Trading vs Active Trading

Most investors that are either beginners or experts identify themselves as two types of traders, each with their own benefits and disadvantages. The first type being the slow-and-steady passive trader who prefers to hold their investments over the long run. The second type being the fast-and-aggressive active trader who prefers to make multiple trades over shorter periods of time. But which type would you identify yourself as?

Active Trader

Active traders use the more aggressive buy and sell strategy, with the purpose of generating profits through correctly anticipating certain market/stock movements. These investors will trade daily/weekly in multiple investments

Advantages

• If done correctly active traders may earn much more profit than passive traders since they are always looking for the best point to sell

• Active traders have more flexibility when making trades, they can choose when to enter and leave the investment at any time

Disadvantages

• Active trading is often more expensive than passive trading as more commissions are paid out per trade

• Risk of losses can be higher as active traders need to correctly predict the direction of the stock in order to gain. One wrong prediction could result in a loss which could negate all gains earned previously

• Time and effort must be implemented to do research on the investment and to make the trades properly

Passive Trader

Passive traders often use the buy-and-hold strategy, they purchase one or multiple investments for the purpose of cashing out many months or even many years later. Most often, passive traders invest in index funds (funds that own fractions of multiple stocks in the market).

Advantages

• Passive traders pay less fees using the buy-and-hold strategy, especially commission fees as they do not trade very often

• Income is more guaranteed and losses are less prominent as studies have shown that over the long run, the stock market shows a general trend of increasing in value over long periods of time

• Investing in index funds such as the S&P 500 and Dow-Jones generally does not require much research, which save time and effort

   

   

   

  Disadvantages

  • Traders must consistently resist the urge to exit the market if the investment becomes unfavorable

  • Returns may not be as high compared to active traders as passive traders may not sell their investment at its best price

Cash vs Margin Account: What’s the Difference?

When you apply for a brokerage account you may notice that there are two types of accounts that you may obtain. These account types determine what you can and cannot do on your account. But what are these account types and what does that mean for you as a trader?

Cash Account

A cash account is available for anyone over the age of 18 years old. These accounts have the following features:

• Unlimited Day Trading (in and out of a position on the same day)

• May not own short positions or borrow funds for investing

• Funds for trading are limited to the amount of cash that was sent to the account

• Have limited features with regards to exchanges (Limited to trading stocks, bonds, and forex)

Margin Account:

A margin account is available to those who are over the age of 21. These accounts have the following features:

• Limited Day Trading (3 times every 5 business days). Violating this rule will flag your account as a potential pattern day trader and you will be unable to buy into positions for a number of days.

  • Number of days the account is unable to buy into positions is determined based on the number of times the rule was violated

• Unlimited Day-Trading for accounts with a Net Liquidation Value of over $25,000 USD or currency equivalent

• Accounts with over $2,000 USD or currency equivalent may short positions and trade with leverage

• May trade in exchanges such as Options and Futures

If you are a trader who prefers to trade passively with no risk of borrowing interest rates, a Cash Account may be more suitable for you. If you are a trader who is less risk adverse and has a preference for larger returns over a shorter period of time, a Margin Account may be more suitable for you.

ROYAL WEST INDIES BROKERS (“RWIBrokers”) is the first (and to-date only) licensed securities intermediary of the Dutch Caribbean by the Central Bank of Curacao and Sint Maarten and the first licensed asset manager on Sint Maarten. RWIBrokers has established proof-of- concept as the first online broker in the Dutch Caribbean. 

CBCS and further licensing

RWIBrokers is incorporated on Sint Maarten as an LLC (in Dutch: “naamloze vennootschap”) and obtained the first (and to-date only) economic license of Sint Maarten to operate a brokerage and asset management firm. An economic license is a conditio sine qua non to operate a business on Sint Maarten. RWIBrokers informed the Central Bank of Curacao and Sint Maarten (“CBCS”) of its intention to start operating an iBroker and since Q4 of 2018 RWIBrokers was granted a license for securities intermediary and asset management.

The CBCS licenses for securities intermediaries (#0001LSI) and asset managers license (#0004LAM) enables RWIBrokers to operate in and from Curacao and Sint Maarten.

State-of-the-Art Technology

Real-time market-risk management and real-time monitoring provide a comprehensive measure of risk exposure across multiple asset classes around the globe and real-time data that gives traders the edge they need to react quickly to the markets.

Our statements and reports include real-time trade confirmations, margin details, transaction cost analysis, sophisticated portfolio analysis, tax optimization and a variety of other supplemental reports. ‘Portfolio Analyst’ lets our clients combine RWIBrokers account data to create a consolidated view of their complete financial portfolio.

Our User Access Rights system allows a trader to assign different account management functions to individual employees within your organization if such is required.

What do we offer?

We now offer  Asset Manager and Brokerage Services (self trading and investing) to our clients throughout the Caribean for all islands and surroundings: 

Antigua and Barbuda, Barbados, Colombia, Bolívar Department, Córdoba Department, Magdalena Department, San Andrés and Providencia Department, Sucre Department, Cuba, Dominica, Dominican Republic, Suriname, Venezuela, Panama, Belize, Guadeloupe, Martinique, Saint Barthélemy, Saint Martin, Grenada, Haiti, Honduras, Jamaica, Aruba, Curaçao, Sint Maarten, Nicaragua, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Trinidad and Tobago, Anguilla, British Virgin Islands, Cayman Islands, Montserrat, The Bahamas, Turks and Caicos Islands and much more…

What Are Brokerage Fees?

In general, brokerage fees are fees the broker charges you to hold and manage your investments. These fees might include annual fees, fees for researching investment data, and inactivity fees if you aren’t trading regularly. It’s important you are aware of the different types of brokerage fees, as well as the types of brokers available to manage your investments. Be aware of hidden fees these will cost you a fortune (bid-spread widening, holding fees, option execution fees, etc), we will disscuss them in a seperate blog post.

Full-Service Broker

Full-service brokers are paid commissions based on transactions. The average fee per transaction at a full-service broker is $150. This is much lower than in the past but still much higher than discount brokers where on average a transaction costs approximately $10.

At a full-service broker, you are paying a premium for research, education, and advice. But it’s important to remember that full-service brokers are also salespeople.

There are also full-service brokers that charge an annual fee between 1% and 1.5% of total assets managed for a client, so will eschew per-trade charges. If you don’t feel comfortable researching and making your own trades, this is a good option to consider. These brokers will also have an incentive to perform well because if your portfolio performs assets under management increase, meaning they make more for managing them. If you’re interested in the full-service broker, please contact clientservices@rwibrokers.com

Discount brokers generally do not offer investment advice. Trading fees for online discount brokers range anywhere from $7.5 to $20, but most are between $10 and $15. These rates are subject to change.

Most investors don’t bother reading Securities and Exchange Commission (SEC) filings, but SEC filings are available to the public and the information within them is like taking an open book test. The answers are provided for you. Unlike press releases, a public company must state the facts in its SEC filings. This makes it relatively easy to research stocks.

Also, pay close attention to industry trends. If fast-casual food chains that offer natural and organic food are in, go with the trend, not against it. Do your research to determine the best of the breed. And you don’t even need to dive that deep. As a general rule, if the broader market is hot, revenue growth will be the key factor driving stock price appreciation. Investors and traders love revenue growth in bull market environments. If the broader market is cold, net income growth and a strong balance sheet will be the keys to success. Investors and traders like to run to safety for dividends and share buybacks in these environments.

The Bottom Line

If you’re impulsive and/or not willing to do your homework, then you should consider a full-service broker. Otherwise, a discount broker, which allows you to execute trades but does not offer investment advice, is a better option.

Fees RWIBrokers.com

The Basics of Day Trading