General deposit check
Anyone who checks all individual positions in their portfolio before their vacation is well advised. Investors should ask themselves the following questions: Which shares still fit their personal investment strategy and which don’t? Do individual stocks contain more risks than opportunities?
If different stocks can no longer be reconciled with the individual investment strategy or risk appetite, investors should get rid of these stocks before the vacation days. In the meantime, however, the focus should not only be on high-risk shares, but also on stocks that have already delivered an impressive performance. Because as Jürgen Kurz from the DSW in Düsseldorf already says: “Taking profits does not make anyone poor.” A precise control is also advisable in the case of shares that are in a sustained downward trend. However, liquidating the entire depot before the vacation is only recommended in exceptional cases, as the large number of sales orders would result in high transaction costs. If an investor nevertheless parted with all of his stocks, the sadness is great when the bull market sets in.
No speculation about the vacation days
In addition to keeping track of their stock positions, investors need to review all short-term investments. Temporary derivatives such as warrants and knock-outs should not expire during the absence. For certificates that have an extraordinarily high leverage, it is advisable to sell them before the vacation days. Otherwise the investor runs the risk of accepting enormous price losses. Of course, this only applies if the options held do not serve to hedge your own portfolio.
Derivatives are not only used for pure speculation, as investors can use these products to hedge their portfolio against falling share prices. For this purpose, investors only choose short and put variants, which increase disproportionately if the prices of the underlying assets fall. The leverage effect of the derivatives enables the investor to hedge even larger custody positions with a relatively low capital investment. This type of backup strategy has its price, of course, but it can be seen as reliable insurance. Investors who expect short to medium-term corrections in the financial markets over the vacation days can thus hedge long-term securities account positions.
Emergency brake with stop-loss order
Those who find the hedging strategy too complex can still rely on the well-known stop-loss order. This order contains a sell order which can be placed at any share price below the current level of the share. If the price of the share falls below the previously set threshold, the shares are offered for sale on the stock exchange without limit. The investor bears the risk that the execution price of his sell order may be below the actual stop-loss threshold. Because the stop-loss order does not offer a price guarantee, as it automatically converts into a best order when the specified threshold is exceeded. With the stop-loss order, investors can limit losses, but only to an uncertain extent. Should a share fall well below the stop-loss threshold due to a sharp slide in the price, there is a risk for the investor that the shares will be sold well below the actual stop-loss price.
Hedging with limited sales
To avoid the risks of the regular stop-loss order, there is the stop-loss limit order. The investor can use this sell order to set a stop-loss threshold and a price limit. The order is only executed if the price of the share exceeds the stop-loss threshold and is above the minimum sales price of the limit order that can be achieved.
Optimal level to sell
But now it is very difficult to find the right level for a stop-loss order. If the safety margin is too small, an order can be triggered unplanned within a few days, even with short-term price fluctuations. If the gap is too great, there may be significant price losses.
A straightforward method is to simply place the sell order ten percent below the current price of the stock. In the case of more volatile shares, the price gap can be fifteen or even twenty percent. It would be much more sensible, however, to place the order just behind a technical chart support line. If such a support line breaks, there is a high probability that the price of the security will decline further. In such a case, the investor can protect himself from major losses.
Power of attorney for emergencies
In addition to all of the options mentioned, there is also the possibility of granting a custody account authorization. For this, the investor needs a person of trust who can intervene quickly in the event of sudden stock market turbulence. A power of attorney must be reported to the responsible custodian bank in advance. Before you give a person you trust a power of attorney for your own securities account, it is advisable to carefully weigh the advantages and disadvantages. Because in this case, too, no one can guarantee an optimal investment decision.
Who is on the drip of the stock exchange
For those who are constantly thinking about the stock market even during their well-deserved vacation, the EU Commission provides a remedy. The roaming charges in other European countries have been abolished. Vacationers can use their mobile Internet at domestic prices. Providers are no longer allowed to charge extra fees for telephony, sending SMS and mobile Internet access. The decision of the EU Commission thus also favors investors who want to stay up to date on vacation, provided they spend their free time in other European countries.
Pierre Bonnet / Forex-news.com.net editors
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