Investing Or Trading The Straits Times Index (STI) – Which One Is More Suitable For Me?

Do you know that you can get exposure to the Straits Times Index (STI) with two different approaches?

Trading and investment are two sides of a coin yet they aim to maximise profits from the financial markets. Before we look more in-depth into the approaches, let’s understand what STI is:

“ The FTSE Straits Times Index (STI) is a capitalisation weighted stock market index that is regarded as the benchmark index for the Singapore stock market. It tracks the performance of the top 30 companies listed on the Singapore Exchange.” – Wikipedia

STI is an index that is popular among retail investors because of its simplicity. Here are some ways that you can include an exposure in this index as part of your investment portfolio.

Interested in ETFs? Get To Know The STI ETF In Singapore

Exposure to STI as an Investment

When considering exposure to an Index as a form of investing over a period of time and reinvesting, time is on your side! Investors tend to prefer to ride out market fluctuations and are more concerned with market fundamentals such as price/earnings ratios and management forecast. Hence, an exposure to the STI could be a good index to look at as part of your portfolio.

STI is an index consisting of the top 30 companies and it selects the 30 companies based on their size, valuation and liquidity.

Investors can gain exposure to the STI via an Exchange Traded Fund (ETF) or even through an open-ended unit trust via a monthly investment savings plan or lump sum investment.

Safe Vehicles for Volatile Emerging Markets – ETFs, ADRs and Indexes

Exposure to STI as a Trade

Traders tend to adopt a shorter holding period with the aim of making profits through short-term changes in price. As a trader, you are prepared to take a higher risk for potentially higher returns. Typically, traders use technical analysis tools, to help them identify entry and exit positions.

It is an interesting time for traders and for those who are considering exposure in the Straits Times Index as IG Singapore has recently introduced a new product called the Singapore Index CFD. This product allows traders to gain indirect exposure to the STI Index with the freedom to go long or short with an Index CFD (Contract For Difference).

The key advantages of trading the Singapore Index CFD is leverage and the ability to go long or short. With a CFD, you can get exposure to a much larger position than with a standard trade.

Thus an Index CFD offers an effective and efficient tool to gain exposure to the STI index with minimal initial capital outlay. The ability to go long or short an Index CFD also makes it an effective hedging tool for your other investments especially when you expect the market to be volatile.

The Million Dollar Question: How Should I Approach STI?

You may wish to consider the following when deciding to invest or trade:

1. If I am considering investing, then the amount of capital committed and my holding period would be important considerations, however
2. If I am considering trading, then a high turnover would also increase by trading costs.

VIDEO: Diversify Your Portfolio With ETFs and REITs

Both investing and trading can have pros and cons. Look at your risk appetite, your capital commitment level and your downside risks, before you decide. It is also important to understand that profits come with risks and preparation. Diversifying your investment portfolio to include exposure to the Index can help you manage your overall portfolio risks.

This article was written in partnership with IG, the world’s No.1 CFD provider (by revenue excluding FX, 2016).