How to safely and successfully experiment before committing to an investment

Posted: 20th May 2019 14:37

Moving into the investment world is a decision that many people eventually choose to take. After all, leaving your savings in a bank account isn’t likely to give the cash return you need, while spending all your money is probably going to leave you penniless in retirement! But it’s always a good idea to be prudent before confirming your decision: you may find through a process of experimentation that your chosen asset class isn’t right for you, or that another asset class would have been more lucrative. This article will explore how to successfully test the waters before diving in.
Use test zones
Many major brokers and providers offer test zones on their web platforms. These zones are perfect for a new investor: they act as virtual sandboxes, allowing you to go through all of the motions of an investment, using fake rather than real money. Say you’re planning to move into a new asset class – while you’d be able to look online and perhaps go through historic price data, without the availability of a test zone, you wouldn’t be able to participate in the movements and fluctuations of that as it happened.
By and large, many major platforms offer this service, so you shouldn’t find yourself stuck without it. If your preferred broker doesn’t offer it, you can always create your own by setting aside a designated time to choose a “deposit” amount, monitor a price data chart and track how the figure changes. Alternatively, you could sign up for a free trial at a broker that does offer the service, and then simply close the account once you’re done.
Gather your information
Doing your research is an integral part of the experimentation process, too, and even if you’re confident or experienced it shouldn’t be skipped. Often, asset classes perform the way they do because of a multitude of forces pulling them in all sorts of different directions. Without knowing exactly what these are, your investment may be doomed to fail, so research is key. This is particularly true when looking for brokers: reading an FxPro review or similar is a good way to ascertain whether or not the features they offer are right for you.
Start small
In many asset classes, small investment amounts are not usually wise ideas. Unless you’re dealing with a financial product that offers a very high return or uses leverage (perhaps a contract for difference), rates of return are not usually high enough to make it a worthwhile investment. If you don’t have a large deposit to put down, of course, then a small investment may well end up being your only avenue to success. Other than that, the only scenario in which a small investment is a good idea is as a test. If you invest an amount you’re willing to lose, you’ll be able to take the emotional heat out of the decision and focus on it as a learning experience.
Accept the risk
For asset classes that have an internet-based dimension, such as cryptocurrency trading or contracts for difference trading, it’s eminently possible to go through test runs online and see what the potential outcomes could be. But for some investments, this is never going to be possible. Investing in property is one of them. Not only is an investment in a bricks and mortar building an activity that obviously can’t be replicated in a screen-based sandbox environment, it’s also the case that the value of a property investment or similar may not realise itself for many years to come – putting test runs out of the question. In a case like this, it’s usually wise to simply accept that the risk is there, gather up your information and then – if all looks positive – go ahead.
Planning your investment decisions is a must-do – and it’s always wise to test the waters before you confirm that you’re going to go ahead with a particular investment type. For some, this will entail a demo account at a leading broker – allowing them to see how an investment may pan out without having any real skin in the game. For others, it may look like information gathering, an activity that is always helpful. And for other investors, it could be that putting up some cash up front is a good way to experiment – provided, of course, that the figure used is small. Whatever experimentation process you prefer, there are plenty of options to choose from.