Trading: Buying and Selling Securities to Earn Profits – Investopedia
Trading is the buying and selling of securities, such as stocks, bonds, currencies and commodities, as opposed to investing, which suggests a buy-and-hold strategy. Trading success depends on a trader's ability to be profitable over time.
How much money you need to begin 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. To trade options and futures, those 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.
Results vary widely depending on various trading strategies, risk management practices, and amounts of capital available for day trading. According to University of California researchers Brad Barber and Terrance Odean, they found that many individual investors hold undiversified portfolios and trade actively, speculatively, and to their own detriment.1 Day traders also can be hit with high brokerage fees and other charges that cut into their profits.
The prices of shares on a stock market can be set in a number of ways. The most common way is through an auction process where buyers and sellers place bids and offers to buy or sell. A bid is the price at which somebody wishes to buy, and an offer (or ask) is the price at which somebody wishes to sell. When the bid and ask coincide, a trade is made.
Options allow for potential profit during both volatile times, which is possible because the prices of assets like stocks, currencies, and commodities are always moving. No matter what the market conditions are there is an options strategy that can take advantage of those conditions to profit, while taking on the risk of losing money as well.
A stock is a form of security that indicates the holder has proportionate ownership in the issuing corporation. A stock, which is also known as equity, is a security that represents the ownership of a fraction of a corporation.
A penny stock refers to a small company's stock that typically trades for less than $5 per share. Although some penny stocks trade on large exchanges such as the NYSE, most penny stocks trade over the counter through the OTC Bulletin Board.
Bonds are units of corporate debt issued by companies and sold as tradable assets. A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments.
Currency is a generally accepted form of payment, usually issued by a government and circulated within its jurisdiction. The value of any currency fluctuates constantly in relation to other currencies.
A commodity market is a marketplace for buying, selling, and trading raw materials or primary products. Commodities are often split into two broad categories: hard—such as gold, rubber, and oil—and soft commodities, which are agricultural products or livestock—such as corn, coffee, and pork.
The Cboe Volatility Index, or VIX, is a real-time market index representing the market’s expectations for volatility over the coming 30 days. Investors use the VIX to measure the level of risk, fear, or stress in the market when making investment decisions.
A price target is an analyst's projection of a security's future price, one at which an analyst believes a stock is fairly valued.
A short position is a trading technique used by investors who anticipate a security will fall in price. In common practice, short sellers borrow shares of stock from an investment bank or other financial institution, paying a fee to borrow the shares while the short position is in place.
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