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Stocks Trading - Advantages and Disadvantages
What is Stocks Trading?
Firms throughout the world problem new stock shares every day. They do so to raise capital as a way to put money into the business. As soon as stock shares have been issued the general public is free to purchase and sell these issues by a stock broker. As the availability and demand for the shares changes so too does the price. Altering stock prices 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 virtually instantly. This, coupled with elevated volatility has given rise to more and more people trading stocks reasonably than just buying and holding them for years.
Advantages of Stocks Trading
Better returns. Actively trading stocks can produce higher overall returns than simply shopping for and holding.
Big Choice. There are millions of stocks listed on markets in the US (such because the New York Stock Trade and Nasdaq) and across the world. There may be always a stock whose value is moving - it's just a matter of finding them.
Familiarity. Probably the most traded stocks are within the largest firms that most 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 usually four:1. Meaning a $25,000 could trade as much as $one hundred,000 of stock. This is pretty low compared to forex trading or futures trading.
Pattern 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 Short Selling. A trader should wait till a stock value ticks up before they can quick sell it. Once more there are no such rules in forex trading or futures trading the place going brief 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 till the trader closes their position. This limits the opportunities available for short selling. Distinction this to futures trading the place selling is as simple as buying.
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