What is Stocks Trading?
Companies throughout the world issue new stock shares every day. They achieve this to raise capital in an effort to put money into the business. Once stock shares have been issued the public is free to buy and sell these issues through a stock broker. As the provision and demand for the shares modifications so too does the price. Altering stock prices means opportunities to profit for a trader.
With the arrival of the internet it is now doable to buy and sell stocks comparatively cheaply and virtually instantly. This, coupled with elevated volatility has given rise to more and more folks trading stocks moderately than just buying and holding them for years.
Advantages of Stocks Trading
Higher returns. Actively trading stocks can produce better overall returns than merely buying and holding.
Huge Choice. There are thousands of stocks listed on markets within the US (such as the New York Stock Trade and Nasdaq) and around the world. There is always a stock whose value is moving – it’s just a matter of discovering them.
Familiarity. The most traded stocks are within the largest companies that almost all of us have heard of and understand – Microsoft, IBM, Cisco etc.
Disadvantages of Stocks Trading
Leverage. With a margined account the maximum amount of leverage available for stock trading is normally 4:1. Which means a $25,000 could trade as much as $100,000 of stock. This is pretty low compared to forex trading or futures trading.
Sample Day Trader Rules. Requires not 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 Brief Selling. A trader should wait till a stock value ticks up before they will quick sell it. Again there are no such rules in forex trading or futures trading where going brief is as straightforward as going long.
Must Borrow Stock to Short. Stocks are physical commodities and if a trader wishes to go short 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 brief selling. Contrast this to futures trading where selling is as simple as buying.
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