Net investment

Author: Consultant Finmaxfx

Net investment is the amount of money spent to purchase new equipment used in business production or new assets to implement buy-and-hold trading strategy in financial markets. Net investment is always less than gross investment as there is always a certain part of investment spending aimed to cover such losses as depreciation or other types of expenditures related to improving the business efficiency or trading system’s performance.

What is a Net investment?

Development and growth are the key factors for any business to survive in a fast-changing competitive environment. There are several ways to improve business efficiency. Some companies prefer to buy new capital assets, enlarging in the overall production capacity. Others direct investment spending into better performance, upgrading existing equipment, software and machinery in order to improve a quality of their products. Nevertheless, any capital asset depreciates with time. This is why a certain amount of investment spending has to be directed to cover those losses.

Net investment is the difference between gross investment and depreciation. In case if a company doesn't spend any amount on gross investment for a certain period, while its capital assets will depreciate, and net investment can be negative.

Therefore, net investment is an indicator of company's activity to improve all of business processes.

When it comes to financial markets, some of the investment spendings have to be directed to assets that can improve profitability of trading. For example, a trader might consider investing in an automated trading system, software, or an algorithm, which can provide better efficiency of trading signals, decisions and number of pips gained at end of the month. Asset as hardware, fast internet connection and other additional tools for trading are essential for the overall profitability. Therefore, besides investing in trading account itself, or enlarging the Investment Portfolio, several sectors of investment spending might be as productive as purchasing some lucrative assets.

How to define Net investment?

Net investment is defined by the difference between gross investment and depreciation. Second part of the equation depends on how fast capital assets are going to lower their cost as different sectors of the economy have different speed of depreciation of capital assets. At the same time, net investment reflects level of development in any business, including trading in the financial markets.

Regardless of where investment spending is directed, net investment is always an indicator of a business’ activity to expand its footprint, enlarge the level of sales and increase profits. When trading Forex, individual investors are interested to increase trading volume of assets that bring the most profits in investment portfolio and exclude losing deals of it. So covering losses and cutting unattractive positions from portfolio is similar to paring the depreciation in real-sector business.

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For example, some shares purchased with an assumption of rapid growth might have delays related to additional fundamental factors. So those assets might show a temporary loss in overall equity of trading account. In case if investor is interested to keep holding those deals, hoping for a surge of their prices in the future, then he has to cover partial losses of the trading account and keep the used margin requirement in overall balance. Once those shares start rising in prices, net investment will soar as well.

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