Today were taking an updated look at a few potential mistakes that beginners on the Football INDEX might easily to fall into. We created the first edition of this Football INDEX beginners guide back in early 2017, so it's high time we updated it to reflect the many changes since made to the Index.
Whilst using the Football INDEX itself is fairly straight forward, we know that there are a few things likely to trip up any new traders.
Let's begin by taking a look at selling on Football INDEX.
Perhaps the most common mistake made, is that the prices shown as your sell price - both for the Market and Instant Sell - are the price before commission is taken away. Football INDEX help themselves to 2% commission on all sales, so tip number one is to always keep in mind the price you are offered will be higher than what you actually receive.
When looking at the profit showing in your portfolio, it’s easy to get carried away seeing as its calculated using the players current market value. Instead bear in mind that best case scenario when selling a player you will receive their current price less the 2% commission.
Should you choose to instant sell that player, the money you receive will be less both the spread and 2% commission.
For example, let us say Harry Kane’s current buy price is £4 and his Instant Sell price is £3.70.
If you chose to sell to market the price you would receive for a Harry Kane would be £4 minus 2% which equals £3.92.
If you chose the Instant sell option the price you would receive would be £3.70 minus 2% commission which equals £3.62.
As you can see there is a big difference between the two sales prices so think carefully when deciding which option to take! If possible, always look to market sell first and use Instant Sell only when you feel it to be required.
Another trap that even experienced traders can fall in to is chasing players on the trending list. New traders may purchase shares in reaction to seeing a player on the trending list. Nine times out of ten, if you can't see a genuine reason for that player to be rising, the price has only one place to go and that is down.
This point also rings true when buying IPO players.
Prices can be pretty volatile when they first come onto the market, so keep your wits about you. Our advice would be to watch and learn for the first few IPO’s to get used to how quickly prices can move.
Then when you do bite the bullet on an IPO, if you miss the initial surge It can often be beneficial to wait it out a couple of days for the player to drop to a fairer market value.
Dividends vs Capital Gains
In our original Mistakes to Avoid For Beginners help guide, we suggested one of the biggest pitfalls new investors can make is to buy players who are excellent in real life but don’t offer an equivalent return on investment.
The rationale is perfectly understandable - players like Mbappe, Dembele and Leroy Sane are players you would pay good money to watch play in real life, but for various reasons, they haven't yet made great dividend returns.
This point is now slightly more complicated as Football INDEX has evolved! Dividends are now not the outright vehicle which drives the market.
Many traders are now making huge gains not from dividend returns but instead from capital gains.
What we mean by this is buying low and selling high. As the influx of new traders has grown, the price rises we are seeing more and more revolve around speculation on future dividend returns.
Whilst the likes of Sane and Dembele are not currently heavy dividend returners, many traders believe they have the potential to offer good dividend returns dividend in the future.
Therefore we are seeing more and more traders buying in at current prices with the anticipation of others doing the same as the footballer hopefully fulfils their potential. Just remember, that for every Paul Pogba there are several Ravel Morrisons!
Making money through capital gains is a completely sound strategy where a lot of money can be made, however as a beginner it could be better to steer towards those who know how to return consistent dividends to form a solid base to a sustainable portfolio, or at the very least have a diversified mix of the two strategies.
Keeping a tab on your progress
Whilst it may seem overkill when first starting out investing on the Index, it is extremely useful keeping a spreadsheet with various stats and figures to track your portfolios progress.
Whether it be keeping track of deposits, daily dividend winners or monthly profits - it’s all very useful information to know and will help you see which players are perhaps best to sell for a profit and of course helps to make sure you aren’t depositing more cash than you can afford.
We have a fantastic spreadsheet available on our website that is completely free to download and covers everything you need to fully track all aspects of your portfolio. Click on the link below to view our user guides and to download: