Choosing Your Stocks Investment Strategy

Perhaps the burning question for any beginner investor is: Which investment method is best? There are two investment options you can choose from: passive or active investments.

Active Investments

To be an active investor means you understand that not all stock market pricing  move at the same rate or even in the same direction with the entire stock market as a whole. Hence you will actively single out individual stocks that you predict have the likelihood of out-performing the over-all index. Actively managed investments, such as mutual funds carry higher costs. This is partly associated with higher trading costs as well as time costs involved with researching likely stock picks and other management costs.

In a way this is similar to day trading on the stock market – if you choose to do the active investing by yourself rather than hire the services of a fund manager. You spend the time researching stocks that are likely to outperform the index and you manage your portfolio personally, buying and selling as you try to capture profits and minimize losses.

Passive Investments

For a passive investor, he or she understand that the market index moves up or down. Having a passively managed fund that is broadly diversified across almost all the available stocks on the stock index is likely to return average returns that are comparable with the returns shown by that index.

One advantage is that passively managed funds often carry lower fees; although this in itself may tend to offer lower returns. And there are investors who favor lower returns because they believe that receiving a low return is better than risking the chance of receiving no return at all.

Again if you’re the type of investor who doesn’t wish to trust their money to a fund manager, then your passive investing option is to acquire a a broadly diversified stock portfolio which you’ll hold for the long term. Then you have the choice of allowing your stocks to simply sit in your portfolio and collecting the dividend or you can reinvest your dividend earnings back into your portfolio to acquire further stocks.

An honest understanding of your own risk tolerance level allows you to choose for yourself which investment strategy you’ll follow: active or passive investing.

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Leverage and Limited Risks In Options Trading

Though options trading is risky for some people, it still has some clear benefits. Traders have experienced flexibility in options trading. Besides options trading gives better protection compared to stocks trading.

Options trading is very appealing to traders with small funds because of leverage. The reason is that since it is only the “option” and not the stock is traded, you could profit with very little investment. And with only a small amount, you can control the full value of the stock because you hold a contract that performs the same way the stock does – but only for a fraction of the stock price.

Another advantage of option trading is the limitations of risks which can be seen from two perspectives. First, is from the duration or the period of the option and second, is from paying a minimum amount for the full value of the asset. During the period of the options, the holder can either exercise the option or not. Any unnecessary movement in the market may be prevented, thus giving more protection to the holder. On the other hand, if the option is not profitable, the holder will only endure the losses for a short and definite period of time.

Finally with option trading, the trader has the liberty to buy or not to buy an option. This is advantageous since the trader is not obligated to pursue with buying an asset when he has lost interest on it. About the most you can lose is the amount you invested for buying the option and this is much less than the price of the actual stock.

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Stocks Trading – Earn More Profits

Stock trading is really not that difficult to understand. However you should be willing to learn the basics and some advanced methods to employ so that you can be among the few people who have attained success trading in the stock market.

A variety of factors can influence the success or failure of a stock investor. In order to keep on making huge profits in the stock market, you can do at least three important steps. As a stock trade, you must have rock-solid methods to ensure success. Without them, you might end up with heavy losses.

Control The Risk

Firstly, know more about money management. You are making a concrete investment in stocks, you should learn to manage your trading funds effectively. To ensure success in stock trading, you must determine the account size.

How long you can stay in the stock market is determined by your investments. If you’re a skillful investor, you really don’t need huge investments. Having an adequate knowledge on how to trade wisely allows you to enter the stock market with only a limited amount of investment.

With this knowledge and understanding of the stock market trade, you can control the risks involved. Ensure that the risk value is always lower that 3% for every trade you make. That is, if your account is $10,000, your potential loss per trade should not be greater than $300. As your account grows, maintain the risk at 3%. This is the only way to minimize your losses.

Use a Profitable Trading System

Use a profitable trading system in order for you not to lose huge money. You have a profitable trading system if you’re able to estimate the edge or the profit potential of your trades over time.

If you need to be certain that the risk is lower when you enter a stock, a trading system is very important. Your account will continue to grow if you know when to enter and exit a stock.

Your system should have a target profit so that you can easily determine where you will enter and where you will exit. By using correct orders, you will earn more profits.

Learn which stocks will move to your advantage. If you’re just starting in stock trading, take time to familiarize yourself with the current market. Study every detail and don’t become a hasty investor. Also get a good broker so you can have a guide on how to go about the trading process.

In summary, earning more profits in stocks trading is guaranteed through managing money effectively and having a good trading system. You can take the time yourself to analyze how the stock market is moving. Or better yet to ensure your success, you can learn from the experts.

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Online Stock Trading

Online stock trading is among the many revolutionary changes brought about by the internet. As a result, stock market trading , once the exclusive area of the rich and wealthy, is now engaged in by the common man. Investors today are equipped with cheap internet client-server technology enabling them to trade stocks anywhere in the world, at any time of their own choosing. A few mouse clicks and the client has just finished a thousand-dollar transaction online!

Two Ways To Do Online Trading

There are at least two ways to do online stock trading. You can use the services of an online broker or you can do it yourself. You must also know the two types of online brokers available: discount and full-service. Discount brokers are those licensed individuals who have direct access to the share market. They don’t give you any advice nor do research for you to get the best options. What they do is just order the stocks you want at a discounted price. These types of brokers don’t earn any commissions but they make money selling mass amounts of stocks.

A full-service broker however offers a lot more than just order stocks. They act as your personal agent in all trade-related activities. They can offer you their advice in what stocks to buy. They can create your safe investment portfolio by offering their investment advice. Commissions being their main source of revenue, they work hard to satisfy you. So they do a lot of research on the best stocks and investments for you in the expectation that you will stay with them.

Whatever the type of broker you choose, still you should make the final decisions carefully. After all, it’s your own investments. Before taking the plunge to online stock trading, do your homework first because stock trading is a complex thing. Your hunch or intuition may turn out to be misleading. Do some research yourself to find out how reliable the trading system is and find out what variables affect your online trading. Better yet, you may also want to read the quarterly and annual reports of companies that you would want to buy shares into. If you have any doubts, you can always ask your stockbroker.

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Your Investment Risk Tolerance Level

Before you choose your investment strategy, it’s rather important to understand your own investment goals and risk tolerance level. Every person has his or her own risk tolerance level and understanding it for yourself is perhaps the determining factor for you to decide which investment method is best.

You may wonder, as most investors do, what is the better option for your investment goals. The level of risk you’re willing to take with your hard-earned money can often determine how you’re willing to spend and invest. After all, higher risks can often yield higher returns. Unfortunately higher risks can also mean compound losses too.

Low risk might equate to lower returns, but it’s commonly believed that a low guaranteed gain is far better than a risky bet on a higher risk return that may not be realized. These are among some considerations you have to make when deciding whether you make your investments in an active or passive way.

Active or Passive Investments?

Actively managed investments, such as mutual funds, try to beat the market performance of a benchmark index, such as the S&P 500, by choosing the best 100 or so performing stocks based on a likelihood of receiving good returns. On the other hand, a passively managed investment will simply accept what that market performance is and invest in all 500 stocks on the index.

It’s crucial to have an honest understanding of your own investment risk tolerance level because this will determine which way you’ll go: active or passive investing.

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