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Stocks Trading - Advantages and Disadvantages
What's Stocks Trading?
Companies all through the world issue new stock shares every day. They accomplish that to raise capital with a view to invest in the business. Once stock shares have been issued the general public is free to buy and sell these points by a stock broker. As the availability and demand for the shares adjustments so too does the price. Changing stock costs means opportunities to profit for a trader.
With the arrival of the internet it is now potential to buy and sell stocks comparatively cheaply and virtually instantly. This, coupled with elevated volatility has given rise to more and more individuals trading stocks quite 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.
Huge 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's always a stock whose value is moving - it's just a matter of discovering them.
Familiarity. The most traded stocks are within the largest corporations 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 often 4:1. That means a $25,000 might trade as much as $a hundred,000 of stock. This is fairly low compared to forex trading or futures trading.
Pattern Day Trader Rules. Requires no 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. Again there are not any such rules in forex trading or futures trading where going short is as easy as going long.
Need to Borrow Stock to Short. Stocks are physical commodities and if a trader wishes to go quick then the broker must 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 straightforward as buying.
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