Choose the right short-term stocks: A smart way to invest in the short term

Why Short-Term Investing Differs from Other Strategies

In the stock market, there are various approaches to generating profits. Each investor can choose based on their skills and goals, from buying good stocks and holding long-term, investing for dividends, to chasing growth stocks. But what sets short-term investing apart is the ability to seize opportunities from price volatility over a short period. Often, traders may buy and sell within fractions of a second or trade weekly to generate quick cash flow.

Two Approaches to Short-Term Stock Trading

Short-term investing generally divides into two main methods. Each has different mechanisms, and investors need to understand these differences to choose the most suitable one.

Approach 1: Holding Actual Stocks in the Stock Market

This traditional stock trading requires an account with a securities broker. Traders own the actual shares and have rights similar to other shareholders, such as voting rights, receiving dividends, or subscribing to new stock issues.

However, this method has limitations. First, it requires full capital investment without leverage. For example, to buy stocks at 200 THB, you need to invest at least 20,000 THB (100 shares) plus a minimum commission fee of 53 THB. Second, commissions are relatively high, approximately 0.278% of the trading value. This means trading 1 million THB would incur about 5,400 THB in commissions for both buying and selling. For frequent traders, this is a significant cost.

Additionally, actual stock trading is restricted by regulations, such as trading in lots of 100 shares, and price spreads can be wide. For stocks priced between 50-100 THB, the price must increase in increments of 0.25 THB. Some stocks also have low liquidity, making trading difficult. Moreover, this method profits only in bullish markets. Withdrawals take T+2 days, and on trading days, traders do not receive rights from holding shares because rights are canceled at the end of the day.

Approach 2: Trading CFDs (Contract for Difference)

This option is very popular among those seeking short-term investments. In this method, traders do not own the actual stocks but can speculate on price movements. It also offers several advantages.

Advantages of Trading CFDs

The first benefit is leverage. By depositing a small margin, traders can control a large amount of capital. The higher the leverage, the greater the potential profit (and the risk of losses also increases proportionally).

A key advantage is the ability to profit in both rising and falling markets. Regardless of market direction, traders have opportunities to make profits. Additionally, CFDs are highly flexible, allowing quick opening and closing of positions without price slippage. Trading is T+0, so once profits are realized, they can be withdrawn immediately.

The CFD market is also highly transparent because it is based on large financial markets (currencies, commodities, indices) with high trading volume and diverse participants. No single entity can manipulate the market. Opening a CFD account is easy and fast, all done online.

Disadvantages to Be Aware Of

However, CFDs also have significant drawbacks. First, traders do not own the underlying stocks and thus do not have shareholder rights. Second, currently, Thailand does not have formal laws regulating CFDs. Most brokers are foreign companies, so traders must verify their credibility to avoid fraud.

Most importantly, leverage carries high risk. While it can amplify profits, incorrect trades can lead to substantial losses. Often, traders may lose all their deposited funds.

Clear Comparison

Which One Fits Your Style?

For investors with sufficient capital who want to benefit from holding stocks, short-term investing through the actual stock market may be suitable, despite higher costs and regulatory restrictions. The risk is lower.

For those aiming to generate quick cash flow with limited funds but high flexibility, CFDs might be a better choice. Ultimately, there is no right or wrong method—only what suits you and delivers the desired results.

Choosing the short-term investment method that fits your profile is key. Consider your needs, resources, and risk tolerance carefully.