Stocks Trading – Advantages and Disadvantages

What’s Stocks Trading?

Companies throughout the world situation new stock shares every day. They accomplish that to lift capital in an effort to put money into the business. Once stock shares have been issued the public is free to purchase and sell these points by a stock broker. As the availability and demand for the shares changes so too does the price. Altering stock costs means opportunities to profit for a trader.

With the arrival of the internet it is now potential to buy and sell stocks relatively cheaply and almost instantly. This, coupled with elevated volatility has given rise to more and more people trading stocks somewhat than just shopping for and holding them for years.

Advantages of Stocks Trading

Higher returns. Actively trading stocks can produce better overall returns than merely buying and holding.

Large Choice. There are literally thousands of stocks listed on markets in the US (such because the New York Stock Change and Nasdaq) and around the world. There may be always a stock whose value is moving – it’s just a matter of finding them.

Familiarity. Essentially the most traded stocks are in the largest corporations that most of us have heard of and understand – Microsoft, IBM, Cisco etc.

Disadvantages of Stocks Trading

Leverage. With a margined account the maximum quantity of leverage available for stock trading is usually 4:1. Meaning a $25,000 may trade up to $a hundred,000 of stock. This is pretty low compared to forex trading or futures trading.

Sample Day Trader Rules. Requires no less than $25,000 to be held in a trading account if the trader completes more than four trades in a 5 day period. No such rule applies to forex trading or futures trading.

Uptick Rule on Quick Selling. A trader should wait till a stock worth ticks up earlier than they can brief sell it. Again there are no such guidelines in forex trading or futures trading where going quick is as simple as going long.

Have to Borrow Stock to Short. Stocks are physical commodities and if a trader needs to go quick then the broker should have arrangements in place to ‘borrow’ that stock from a shareholder till the trader closes their position. This limits the opportunities available for short selling. Contrast this to futures trading where selling is as simple as buying.

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