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Stocks Trading - Advantages and Disadvantages

What is Stocks Trading?

Corporations throughout the world concern new stock shares each day. They accomplish that to raise capital with a purpose to spend money on the business. As soon as stock shares have been issued the public is free to purchase and sell those points by means of a stock broker. As the supply and demand for the shares adjustments so too does the price. Altering stock costs means opportunities to profit for a trader.

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

Advantages of Stocks Trading

Better returns. Actively trading stocks can produce better general returns than simply shopping for and holding.

Large Choice. There are thousands of stocks listed on markets in the US (such as the New York Stock Change and Nasdaq) and around the world. There is always a stock whose worth is moving - it's just a matter of discovering them.

Familiarity. 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 amount of leverage available for stock trading is usually four:1. Meaning a $25,000 could trade as much as $one hundred,000 of stock. This is fairly 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 4 trades in a 5 day period. No such rule applies to forex trading or futures trading.

Uptick Rule on Brief Selling. A trader must wait till a stock price ticks up earlier than they will quick sell it. Once more there are no such guidelines in forex trading or futures trading where going quick is as simple as going long.

Must Borrow Stock to Short. Stocks are physical commodities and if a trader wishes to go short then the broker must 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. Distinction this to futures trading where selling is as simple as buying.

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