Stock trading

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Stock trading

Stock trading is the act of buying and selling securities in which short-term strategies are employed to maximize profits Active traders take advantage of short-term fluctuations in price and volatility Casual investing involves buying and holding securities, with the investor focusing on long-term strategies to maximize wealth Moving from casual investing to active trading is a big step

Therefore, it is important to understand the implications of making the switch, such as paying larger commissions, which could wipe out your gains before you begin

Trading Expenses

Commissions are likely to be the greatest cost you will assume as an active trader Other expenses, such as software, Internet, and training costs, could also be high, but they are dwarfed by the cost of commissions A trader may make over 100 transactions per month, and the commissions will vary widely depending on the broker Savvy investors shop around for the best software, execution speeds, and customer service, as well as favorable commission costs

Brokerage Requirements

Although there is no hard and fast rule for how much you should have in your account to start trading, many brokerages will set this amount for you For example, a brokerage may say that you need a minimum of $3,000 to open a margin account, the type of account you would need to make short sale trades or to purchase or sell options

For a good start, be sure to look out for account minimums at the brokerages you investigate This number usually is set for a reason because it is in the brokerage's best interest to keep you trading for as long as possible to ensure that they continue to collect commissions

These minimums often are put into place to reduce the risk of you burning up your entire account in just a few trades, or even worse, getting a margin call In the case of the latter, you would have to deposit more funds into your account in order to keep your current position open

Stock Strategy

Special Considerations

The amount of money you need to begin day trading depends on the type of securities you want to buy

Stocks typically trade in round lots or orders of at least 100 shares


To buy a stock priced at $60 per share, you will need $6,000 in your account A broker may let you borrow half of that money, but you still need to produce the other $3,000

Options and futures trade by the contract A contract represents some unit of the underlying security In the options market, one contract is good for 100 shares of the stock


You can buy less than the usual round lot for a security, but you will probably have to pay a high commission and receive poor execution of your order Thus, the returns on each trade tend to be small, so make sure you have enough funds to trade your target asset optimally

Bonds trade on a per-bond basis, not in fractional amounts, and each bond has a face value of $1,000 Some trade for more or less than $1,000 depending on how the bond’s interest rate differs from the market rate

Stock Strategy

Stock trading Strategy


Many dealers have a minimum order of 10 bonds, making the minimum order $10,000

Commissions have traditionally been the biggest expense a trader has had to deal with, so when a brokerage is offering supposedly free trades, check carefully to see what the tradeoff is of no commissions

Other Things to Look For

Many online brokerages are now shifting to commission-free trading That means $0 cost to trade most stocks and ETFs This trend began with app-based Robinhood

Free trading means that these companies must make their money from other sources, so you should be on the lookout for how that may affect you For instance, are these companies selling your order flow, in which case you may not be getting the very best price possible on your trades Or are they selling your personal information and data for marketing purposes? Are they no longer crediting you with interest on your cash balances?

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