Whether you want to invest a small amount from your eBay sales or you want to invest a substantial amount, investing online has become an excellent choice to earn some extra cash with your unused funds.
I used to work at an investment firm offering traditional investment products (institutional mutual funds, stocks, etc.) to our potential costumers.
We used to say that the worst customer is someone who has knowledge about the financial markets.
If you had to speak with someone like that they would immediately point out that our firm is inferior in both fees and return to other investment opportunities.
They were right and we all knew it, except our paying costumers…
The world of investing has changed a lot since the advent of the internet.
More and more people realize that the traditional way of investing no longer competes with technologically advanced alternatives.
New products from the so-called financial technologies revolution.
These new investment products are more efficient, accessible and convenient.
No need to leave your home, sign hundreds of pages for a contract in your bank. I will go over some of the best ways to invest your money online, no matter the amount.
Investing online at a brokerage firm
This is the most straightforward option, however, these online brokerage firms are very different from a bank.
For once most don’t even offer ownership of any of the assets (Stocks, bonds, Etc.) instead they offer CFD-s (Contract for difference), which is simply a contract between you and another trader or you and the brokerage firm.
The contract will follow the price movement of the underlying asset. The advantages are that you can use high leverage to expose your capital more to the market movements.
The disadvantages are that you don’t get dividends for your ownership of the asset (If there is any).
Keep in mind that if you are using leverage you are essentially borrowing money from the brokerage firm and you have to pay a fee (swap) for that.
They offer a wide range of products like stocks, bonds, ETF-s, indices, Forex, commodities, futures, options, binary options. All have different risks and rewards. So you should choose the one which aligns best with your goals.
Expertise needed: 5/10
(Understanding all the instruments)
(Volatility risk, Market movement risk,
This is the first big innovation among online brokerage firms. In the past traders and investors could only rely on themselves to make choices.
With social trading, the brokerage firm functions as a social network as well. All participants share information and expertise.
You can see what the majority of investors do on all markets or copy specific traders on the networks.
The reason this works is because the markets always move in line with mass psychology, it is a self-fulfilling prophecy.
Following common opinion and trends is a good way to trade, now with social trading, it has never been easier.
Expertise needed: 2/10
(Volatility risk, Market movement risk, Fraudulent actor in the network)
More about social trading.
Investing online at a peer-to-peer lending platforms
Perhaps the latest innovation is where you cut out the banks from the lending business itself.
These lending platforms connect lenders and borrowers directly. While, in the case of a brokerage firm your capital is at risk from market movements when you lend, the only risk comes from defaults.
However, the default rate can be mitigated more effectively than a downward market movement.
Expertise needed: 4/10
(Screening out bad borrowers)
Investing online in Cryptocurrency
You probably heard about Bitcoin by now, but contrary to popular belief it is not just a payment system. Bitcoin and any cryptocurrency is an excellent investment opportunity if you know what you are doing. Bitcoin behaves as a commodity because of its scarcity (finite numbers) and fixed decreasing inflation. (the same way as a resource would be mined out)
Expertise needed: 8/10
(Understanding how cryptocurrency works)
(Volatility risk, Market movement risk, technological risk)
When you move a substantial amount of money, the fee for transfers can severely reduce your return on investment, when you deposit or withdraw your funds. There are ways to mitigate these fees by using e-wallets and Peer-to-peer exchanges instead of bank transfers.
E-wallets have become extremely popular for both making purchases online or moving money around. Most e-wallets have a better fee structure than banks, however not all. It is very important to use the correct e-wallet for various transactions.
Peer-to-peer exchanges give you a cheap alternative to exchange currencies or to transfer funds between bank accounts. They match people who want to do the same thing in opposite direction.
A comparison of Peer-to-peer exchanges.
No matter where you invest the safety of your funds is the most important thing.
The best way to guarantee this is to make sure you invest with a well-regulated entity. You can avoid all kind of nasty outcomes like trading in an unfair environment, your funds vanishing and other fraud by understanding what these regulatory bodies do.
What do all these investments have in common? They all avoid the banks and big institutions which in my opinion grew way too big and inefficient. You should always diversify your investments, therefore choosing more of these online investment options is a good idea.