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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:

South Korea new coronavirus front as 100 fresh cases confirmed
Fri, 21 Feb 2020 12:50:00 +0000
South Korea has become the newest front for the coronavirus outbreak outside China as 100 new cases were confirmed on Friday.

Russia showing a 'lack of humanity' in Syria, says UK's UN ambassador
Fri, 21 Feb 2020 10:09:00 +0000
Britain's UN ambassador Karen Pierce has accused Russia of a "lack of humanity" in Syria, as the UN revealed that more than half of the nearly million people displaced in Idlib province by the escalating conflict are children.

£150k raised to send bullied schoolboy to Disneyland
Fri, 21 Feb 2020 13:03:00 +0000
A comedian has raised more than $200,000 (£154,000) after setting up a fundraising page to send a nine-year-old boy who is being bullied because of his dwarfism to Disneyland.

Countdown to Taliban-US truce in bid to end 18-year Afghan war
Fri, 21 Feb 2020 15:52:00 +0000
The end of 18 years of war in Afghanistan could be in sight as the countdown to signing a peace agreement between the Taliban and the United States will begin on Friday.

Bollywood releases 'first film with gay man as lead character'
Fri, 21 Feb 2020 16:24:00 +0000
A rom-com touted as Bollywood's first film to feature a gay male lead character has been released in cinemas.



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