Stocks Trading - Advantages and Disadvantages

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Stocks Trading - Advantages and Disadvantages

Stocks Trading - Advantages and Disadvantages

What is Stocks Trading?

Companies throughout the world issue new stock shares every day. They do so to raise capital in order to invest in the business. Once stock shares have been issued the public is free to buy and sell those issues through a stock broker. As the supply 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 possible to buy and sell stocks relatively cheaply and almost instantly. This, coupled with increased volatility has given rise to more and more people trading stocks rather than just buying and holding them for years.

Advantages of Stocks Trading

Better returns. Actively trading stocks can produce better overall returns than simply buying and holding.

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

Familiarity. The most traded stocks are in the largest companies 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 4:1. Meaning a $25,000 could trade up to $100,000 of stock. This is pretty low compared to forex trading or futures trading.

Pattern 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 must wait until a stock price ticks up before they can short sell it. Again there are no 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 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 short selling. Contrast this to futures trading where selling is as easy as buying.

Costs. Although online trading costs for stock trading are low they still add considerably to the costs of daytrading. Online futures trading is about 1/4 of the cost for the equivalent value. In the UK 0.5% stamp duty is also levied on all share purchases making trading virtually impossible - Hence the popularity of spreadbetting.

Tim Wreford runs Online Futures Trading, a website that provides information and resources for traders. Tim also provides a free day trading system, the results of which are updated daily on the site.

In The News:

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AFP
Euro Back in Favor as Stocks Gain
Wall Street Journal - 19 hours ago
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Yen Trades Near Three-Week High on Signs US Recession Deepens Bloomberg
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guardian.co.uk, UK - 16 hours ago
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Americans’ ’Hypocrisy’ in Auto Rescue Spurs Me-Too Trading Ire
Bloomberg - 10 hours ago
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Euro Forecast to Decline Further Against US Dollar on Forex ...
Daily FX, NY - Nov 20, 2008
EURUSD – Currency trading crowds have recently bought the Euro against the US Dollar, and we forecast that the sudden shift in sentiment may bring Euro ...

AFP
WSJ(11/11) Currency Trading: Bad Crop: Commodity Currencies
Alibaba News Channel, NEW YORK - Nov 11, 2008
When commodity prices fall, it translates into a shock for the trading position of commodity-exporting nations. Suddenly, the price they earn for their ...
Value Plays in Equity Markets Help Support Euro Rally International Business Times
Euro firms against dollar, pound sinks amid credit turmoil AFP
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Kuwait Times
Forex Expo promotes currency trading as alternative to bourse
Kuwait Times, Kuwait - Nov 20, 2008
By Dana Khraiche, Staff writer KUWAIT: Currency trading has its ups and downs. Recently, one of Kuwait's largest lenders, Gulf Bank suffered a major crisis ...

Currency Trading Markets Remain Highly Correlated to Dow Jones ...
Daily FX, NY - Nov 18, 2008
Currency trading markets continue very highly correlated to broader risky asset classes, as the common theme of financial market deleveraging creates strong ...
Currency Trading Markets Remain Highly Correlated to Dow Jones ... Daily FX
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WISH
Mexican Peso Posts Biggest Weekly Drop in Month on Growth View
Bloomberg - 11 hours ago
... the nation’s biggest trading partner, will throttle demand for Mexican-made cars, electronics and beer. The currency slumped as much as 1.9 percent ...
Mexico peso sinks on US recession worries Reuters
Mexico sells $400 million in foreign reserves The Associated Press
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Hong Kong Loves Its Currency Peg
Wall Street Journal - 19 hours ago
That means Hong Kong remains cost-competitive with a major trading partner, even if authorities have to deploy their reserve funds to keep the peg intact. ...

currency trading - Google News

Stocks Trading - Advantages and Disadvantages

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