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Speculating to accumulate during a cost of living crisis

22nd July 2022 Print

Let’s face facts; the cost of living crisis in the UK is likely to get considerably worse before it improves.

After all, June saw inflation jump to a 40-year-high of 9.4%, highlighting an increase from the rate of 9.1% in May and exceeding analysts’ expectations in the process.

Of course, such rampant inflation is also continuing to erode real wage growth, accelerating a pre-existing trend and plunging a growing number of people into unmanageable cycles of debt.

But how can you respond in instances where real wage growth continues to stagnate while the cost of food, energy and other sundries soar? Well, one option may be to seek out additional income streams, which can be combined with your existing job and create far greater financial security over time. 

Understanding Passive Income Streams 

Of course, the challenge here is accessing the best and most viable income streams. After all, not all have been created equal, with some requiring a commitment of time and energy that may be unrealistic while maintaining a full-time job.

But what income streams are viable when also holding down permanent employment? Well, you’d ideally look for passive income streams, which essentially describe “unearned” income that’s acquired automatically and with little need for manual labour or human interaction.

One of the best traditional examples of this is real estate investment. For example, if you buy a house and list this as a rental property, you’ll begin to earn a monthly rental yield once tenants have moved in. 

This is paid directly by the tenants into your account, while the amount charged should ideally provide a small profit on top of your mortgage repayments.

While buying a house (particularly a second one) may be beyond the means of most households at present, it’s fair to say that the financial market as a whole is packed full of passive income opportunities. 

Many of these are also far more accessible too, enabling you to build a viable portfolio that optimises returns with minimal time commitment.

Identifying Speculative and Accessible Passive Income Streams

If we drill down deeper into the financial market, however, what other characteristics should be kept in mind when choosing assets that can generate a passive income stream?

Well, they should ideally provide minimal barriers to entry, either in terms of executing real-time trading or the associated costs. This way, you can look to leverage price shifts and real-time market trends as a way of optimising profitability, while minimising the amount of capital required to start trading.

We’d argue that the best assets from a passive income perspective are also speculative by nature. The main reason for this is that they can deliver a return without requiring you to assume ownership of the underlying financial instrument, creating far greater flexibility and higher profits over time.

This also makes it possible to profit even as the value of an asset depreciates, which simply isn’t an option when you engage in a traditional, buy-and-hold investment strategy.

For example, let’s say that you choose to trade stocks as a way of generating passive income. If you opt for a buy-and-hold strategy, you’re encumbered with the asset in question and dependent on its value increasing above the buy price if you’re to achieve any kind of profit.

So, while any profit that you eventually bank on can still be described as passive, you may find your capital inaccessible for a period of time depending on the precise movement of the market.

Conversely, choosing to trade stocks through CFDs or indices enables you to speculate on relevant price movements. So, you don’t actually own any stock or have money tied up in shares, allowing you to leverage price fluctuations and market volatility to your advantage and potentially profit regardless of the asset’s trajectory.

This represents a huge advantage, especially in an age of online trading where the execution of multiple real-time orders can be processed efficiently.

The Last Word - Why Forex Trading is Ideal for Generating Passive Income

With all of these points in mind, there’s a strong argument that forex trading is ideal for those of you wanting to generate a viable passive income stream.

Not only is trading for beginners more accessible than ever in the digital age, for example, but forex is also highly volatile, incredibly speculative and capable of delivering returns that are far higher than your initial deposit.

This is thanks to the use of inflated leverage, which allows you to open and control disproportionately large trading positions (sometimes at a ratio of 200/1 in relation to the size of your deposit). Of course, this can also increase the size of any subsequent losses, but using leverage responsibly and capping this in line with your margin can help you to strike the ideal balance between risk and reward.

In terms of how to trade forex for beginners, we’d recommend that you build a solid base of theoretical knowledge before using a demo account to access a simulated, real-time trading experience. 

This way, you can sample the market’s volatility and pace without risking your hard-earned cash, while building a viable strategy that optimises your chances of banking a passive return over time.

Ultimately, there’s no risk-free way of generating passive income through investment, and it should be noted that as many as 70% of forex traders actively lose money on a frequent basis.

However, forex trading is capable of providing passive and optimised returns, while its increasingly automated nature and the availability of leverage also make it easier to simultaneously minimise the risk of loss and chase increased gains.