Stock trading
Wiki Article
Stock trading
Stock trading is the act of buying and selling securities in which
short-term strategies are employed to maximize profits Active traders
take advantage of short-term fluctuations in price and volatility
Casual investing involves buying and holding securities, with the
investor focusing on long-term strategies to maximize wealth Moving
from casual investing to active trading is a big step
Therefore, it is important to understand the implications of making the
switch, such as paying larger commissions, which could wipe out your
gains before you begin
Trading Expenses
Commissions are likely to be the greatest cost you will assume as an
active trader Other expenses, such as software, Internet, and training
costs, could also be high, but they are dwarfed by the cost of
commissions A trader may make over 100 transactions per month, and the
commissions will vary widely depending on the broker Savvy investors
shop around for the best software, execution speeds, and customer
service, as well as favorable commission costs
Brokerage Requirements
Although there is no hard and fast rule for how much you should have in
your account to start trading, many brokerages will set this amount for
you For example, a brokerage may say that you need a minimum of $3,000
to open a margin account, the type of account you would need to make
short sale trades or to purchase or sell options
For a good start, be sure to look out for account minimums at the
brokerages you investigate This number usually is set for a reason
because it is in the brokerage's best interest to keep you trading for
as long as possible to ensure that they continue to collect commissions
These minimums often are put into place to reduce the risk of you
burning up your entire account in just a few trades, or even worse,
getting a margin call In the case of the latter, you would have to
deposit more funds into your account in order to keep your current
position open
Stock Strategy
Special Considerations
The amount of money you need to begin day trading depends on the type of securities you want to buy
Stocks typically trade in round lots or orders of at least 100 shares
1
To buy a stock priced at $60 per share, you will need $6,000 in your
account A broker may let you borrow half of that money, but you still
need to produce the other $3,000
Options and futures trade by the contract A contract represents some
unit of the underlying security In the options market, one contract is
good for 100 shares of the stock
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You can buy less than the usual round lot for a security, but you will
probably have to pay a high commission and receive poor execution of
your order Thus, the returns on each trade tend to be small, so make
sure you have enough funds to trade your target asset optimally
Bonds trade on a per-bond basis, not in fractional amounts, and each
bond has a face value of $1,000 Some trade for more or less than $1,000
depending on how the bond’s interest rate differs from the market rate
Stock Strategy
Stock trading Strategy
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Many dealers have a minimum order of 10 bonds, making the minimum order $10,000
Commissions have traditionally been the biggest expense a trader has
had to deal with, so when a brokerage is offering supposedly free
trades, check carefully to see what the tradeoff is of no commissions
Other Things to Look For
Many online brokerages are now shifting to commission-free trading That
means $0 cost to trade most stocks and ETFs This trend began with
app-based Robinhood
Free trading means that these companies must make their money from other
sources, so you should be on the lookout for how that may affect you
For instance, are these companies selling your order flow, in which case
you may not be getting the very best price possible on your trades Or
are they selling your personal information and data for marketing
purposes? Are they no longer crediting you with interest on your cash
balances?