While this is something of a tongue in cheek comment, how often do you hear those with positive returns mention relative performance? In some ways, the relative performance measurements can be a way to cast losses, but relative outperformance, in a more positive light. At first glance, maybe relative performance is more appropriate for long-term investors? However, on reflection, how do short-term traders measure their returns?
Measuring relative performance
The idea behind relative performance is pretty simple; you measure the performance of your investments against the relevant index, sector or subsector. However, if you were to measure, say, the performance of your Barclays Bank investment against the broader UK stock market, is this of any use?
Yes, you will be able to calculate your relative performance against the UK market but is the banking index not more appropriate? For example, if you measure the performance of your Barclays Bank shares against the UK banking sector, this will give you an idea of how the company has performedrelative to its peers. A constant underperformance would likely prompt you to reconsider your position. Conversely, persistent outperformance may lead you to move your stop-loss limit higher, running your winners and cutting your losers.
Finding the right benchmark
Finding a suitable benchmark will allow you to compare and contrast the performance of your investments. In theory, it is perfectly valid to measure the performance of your total portfolio against, for example, the FTSE 100, FTSE All-share or even one of the global indices. The measure you choose will depend on your degree of diversification.
On occasion, it may be an idea to drill down into individual sector investments because, as mentioned above, the performance of the constituent sub-sectors of any index will vary significantly. One prime example is banking and technology, seen by many as akin to old school meets new school.
Intraday trading
You will find that day traders, and technical traders, are open to any short-term trading opportunities. Although many tend to have a favourite sector(s) on which they focus. While wrong to suggest short-term traders take an all in approach, there is certainly less diversification compared to long-term investors. Therefore, comparing and contrasting performance against focused indices may be more relevant.
For example, technology shares tend to be particularlyvolatile, often providing the perfect scenario for short-term traders. Consequently, comparing and contrasting your tradingperformance against the FTSE techMARK 100 or a broader technology index would be helpful. As a side note, it may even be an idea to compare and contrast performance againstone of the tech-focused NASDAQ indices.
This brings us to the perceived valuation discount between the UK and US technology sectors. But that is a subject for another day.
Stop-loss limits
There is a common misconception that day traders and technical traders are "gamblers", often willing to take on high risk, potentially high return opportunities. In reality, most short-term traders will look to maximise their profits and minimise their losses, using stop-loss limits. As a result, it is unlikely they would let their heart rule their head, a common downfall for many investors.
Enhance profit margins with competitive charges
Aside from investment research, there are two ways to enhance your profit margins as a short-term trader. Firstly, find a reliable trading platform with low latency and the ability to deal almost instantaneously. Secondly, find a broker offering a competitive charging structure. It is crucial to find a balance between these two factors because they will considerably impact your investment returns. So how do we stay competitive?
Our continuous investment in new technology improves our services and customer experience and can provide significant efficiency savings. These savings allow us to remain competitive on pricing, leading to increased business, more funds to re-invest, and the cycle begins again. While success breeds success and confidence also breeds confidence, we never take anything for granted.
Summary
Global Investment Strategy UK offers a full range of investment services with particular emphasis on professional traders and investment companies. The majority of these parties deal on an execution only basis, carrying out their own research, but still require a cutting edge trading platform and competitive charges. So to maintain our competitive edge, we go above and beyond our competitors, creating the perfect environment for our clients.