What is Stocks Trading?
Corporations throughout the world issue new stock shares every day. They achieve this to lift capital to be able to put money into the business. Once stock shares have been issued the public is free to buy and sell those issues through a stock broker. As the provision and demand for the shares changes so too does the price. Changing 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 increased volatility has given rise to more and more individuals trading stocks somewhat than just shopping for and holding them for years.
Advantages of Stocks Trading
Higher returns. Actively trading stocks can produce higher overall returns than simply buying and holding.
Big Choice. There are thousands of stocks listed on markets within the US (such as the New York Stock Exchange and Nasdaq) and around the world. There may be always a stock whose price is moving – it’s just a matter of finding them.
Acquaintedity. The most traded stocks are within the largest companies that the majority of us have heard of and understand – Microsoft, IBM, Cisco etc.
Disadvantages of Stocks Trading
Leverage. With a margined account the utmost amount of leverage available for stock trading is often 4:1. Which means a $25,000 might trade up to $100,000 of stock. This is fairly low compared to forex trading or futures trading.
Sample Day Trader Rules. Requires at least $25,000 to be held in a trading account if the trader completes more than 4 trades in a 5 day period. No such rule applies to forex trading or futures trading.
Uptick Rule on Short Selling. A trader should wait until a stock price ticks up before they will brief sell it. Once more there are no such rules in forex trading or futures trading where going short is as simple as going long.
Have to Borrow Stock to Short. Stocks are physical commodities and if a trader needs to go brief then the broker will need to have arrangements in place to ‘borrow’ that stock from a shareholder until the trader closes their position. This limits the opportunities available for brief selling. Contrast this to futures trading where selling is as straightforward as buying.
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