How is Spotalpha used for active investing, long-term investing and intraday trading.
Spotalpha’s tools are used by a wide range of users – active investors, long-term investors, intra-day traders and institutional investors. This post describes how each of our tools are used by these investors.
*Note: You can skip most of this article if you understand the terminology and go directly to the end.
Lets understand the terminology so that you can identify which tools and techniques are right for you :
- Long-term investors : You are a Long-term/passive investor if your portfolio allocation is unchanged for more than 3 months. Investing is not your primary source of income and therefore you are willing to hold positions longer – through drawdowns till prices recover. The typical risk profile of long-term investors is greater than active investors (up to 20% drawdown risk) and you are aiming for a modest 15% return per year – which beats fixed deposit investing.
- Active investors : You are a Active investor if you typically change your portfolio allocation within 3 months. You are looking to shift allocation from stocks/sectors that you own, where performance is fading, in to stocks/sectors that you feel will start outperforming. The typical risk profile of active investors is low (<10% drawdown risk) and you are aiming for greater than 25% returns per year.
- Intra-day traders : You are a intra-day trader if you open and close positions in a security within the same day. You are confident about your trading strategy and take leverage (trade with margin funds) to amplify your returns. You spend considerable time at your trading desk during market hours – carefully monitoring your positions. Because it is very time consuming and expensive (significantly high brokerage costs) you need a higher return than Active and Long term investors to justify the effort and risk. The typical risk profile of intra-day traders is high, owing to leverage (10% to 20% drawdown risk) and you are aiming for greater than 50% returns per year.
- Institutional investors : You are a Institutional investor if you are employed or represent an institution that has pooled funds to invest in securities. This includes but is not limited to Hedge funds, Mutual Funds, Portfolio Management Services, AIFs, Family offices, Corporate treasuries, Endowments, e.t.c. Your risk and reward profile depends on your funds mandate.
Now that you know what type of investor you are it’s time to identify the right strategy for you. Read 3 different ways to use Portfolio Optimizer for stocks.