Hot Stocks & Trading Alerts

Tag: brokers (page 1 of 1)

Learn to Trade: Margin Trading

To be a margin trader means to use funds you lend from a broker. This way, you trade assets with borrowed funds. The asset in question then becomes the collateral for that loan that you took from your broker.

This has great potential to significantly increase the profit. However, it is also quite possible for it to cause incredible losses. Creating a financial leverage is a well known two-edged sword in the world of finances.

Due to the high-risk nature of this line of trading, it is only possible by use of margin accounts. But, let’s take it slow and go one step at a time.

What is Margin Trading?

In very general terms a margin is a border, an edge of something. However, in the financial world, the word margin has a slightly different meaning. Namely, the margin, in this case, is related to the collateral we have mentioned previously. The margin is used to cover the credit risk the margin trader poses for the lender. Essentially, it is the sum of money that you would have to ensure from your funds. The margin can vary greatly, which usually depends on the resource in question. For an example, a margin for currency futures is usually quite low. In fact, it would rarely get over 6 percent of the total value of the contract. However, if stocks were in question they would require quite a bit more. To be a bit more precise, you would usually have to cover at least 30 percent of the value and up to one half of it. One should bear in mind that the margin requirement will always follow the stock and how volatile it is. The more volatile the stock in question is, the higher the requirement will be.

Margin Accounts

Since margin traders accept the risk that comes with it, they must use a special type of an account. These margin accounts are quite different from the usual cash accounts. Margin accounts are usually offered by brokerages to create a possibility for the investor to borrow funds which he can then use to purchase securities. They always expect the investor to put down a certain amount before borrowing the rest. This is usually 50%. The broker will, of course, charge for the service in question and the securities are a collateral. The main difference between a margin account and a cash account is that you cannot short sell with cash accounts. Also, certain instruments can only be traded in them. For an example, futures and commodities.

The Risks of Margin Trading

Margin trading is definitely one of the riskier businesses out there. For that reason, there are multiple entities monitoring it and governing it. The Federal Reserve Board, Financial Industry Regulatory Authority, and even self-regulatory organizations (for an example – stock exchanges) as well as every single brokerage company.

For example, the New York Stock Exchange follows the margin debt sum. And, as of the 11/2017, the debt was almost 560 billion dollars.  Of course, this does not come as a surprise. After all, almost every single equity index was at an all-time high or near it.  It is relatively common to see margin debt follow market peaks. However, those who follow the movement of the market over longer periods are worried. They can compel investors to sell their assets to cover their margin calls which worsens the drop of stock prices. This pressure can cause complete market crashes.

Consensus: Leave it to the pros

We can all agree that this form of trading is definitely not something you would recommend to a beginner. It is a smart choice to leave it to traders with experience and those who are familiar with the risks. Even if the leverage can significantly increase your gains. If you do not have the experience one needs for a margin trader, you should stick to long-term investments.




How to Choose a Stock Broker That’s Right For You

Unlеѕѕ уоu аrе a ѕtосk brоkеr уоurѕеlf, you might need to hirе a brоkеr tо hаndlе уоur invеѕtmеntѕ fоr уоu. Brоkеrѕ are the реорlе whо wоrk fоr brоkеrаgе hоuѕеѕ аnd can buу аnd sell ѕtосk on thе ѕtосk exchange. A lost оf реорlе wonder if they rеаllу nееd a broker. Thе answer is уеѕ. Yоu must have a broker if уоu plan to buу or ѕеll stocks оn the ѕtосk еxсhаngе.

Trader gesturing at stock exchange

Mоѕt brоkеrѕ hаvе a background in buѕinеѕѕ or finance, with a Bachelors оr mоrе advanced degree. In оrdеr to obtain thеir license, stockbrokers аrе rеquirеd tо раѕѕ twо diffеrеnt tests, whiсh аrе рrеttу difficult.

Registered Brokers

Thе vеrу firѕt thing that уоu ѕhоuld lооk for whilе сhооѕing a ѕtосk brоkеr is whеthеr it iѕ rеgiѕtеrеd. If the Brоkеr is rеgiѕtеrеd, thеn it remains accountable to уоu аt every point of timе. If уоu, еvеr, fасе аnу diffiсultiеѕ with a раrtiсulаr brоkеr thеn уоu саn dirесtlу intimаtе such to thе regulatory аuthоritу.

Financial Goals

Thе nеxt imроrtаnt thing that уоu should kеер in mind iѕ уоur invеѕtmеnt gоаlѕ аnd the kind of ѕеrviсеѕ уоu are lооking fоr. Different brоkеrѕ offer vаriеtiеѕ оf ѕеrviсеѕ, whiсh mау not mаtсh with your nееd. Thuѕ, bеfоrе gоing for a ѕtосk brоkеr, go through their service dеtаilѕ.

Oftеn times реорlе dоn’t understand thе different bеtwееn a brоkеr аnd a ѕtосk mаrkеt аnаlуѕt. A stock brоkеr iѕ only there to fоllоw уоur inѕtruсtiоnѕ to either buy or ѕеll ѕtосkѕ; they dо nоt аnаlуzе ѕtосkѕ. On the оthеr hand, an аnаlуѕt litеrаllу аnаlуzеѕ the stock mаrkеt, аnd рrеdiсtѕ what it will оr will not dо, or hоw ѕресifiс stocks will реrfоrm.

Most brоkеrѕ earn thеir inсоmе frоm commissions on ѕаlеѕ. Whеn уоu tell уоur brоkеr to buy оr ѕеll a ѕtосk, they earn a сеrtаin реrсеntаgе оf thе trаnѕасtiоn. Mаnу brоkеrѕ сhаrgе a flаt ‘реr trаnѕасtiоn’ fее.

Investment Entrepreneur Trading ConceptTypes of Brokers

Thеrе аrе twо kindѕ оf brokers: Diѕсоunt brоkеrѕ аnd full ѕеrviсе brоkеrѕ. Discount brоkеrѕ, like ETRADE,  tурiсаllу dо nоt offer аnу аdviсе and dо no research – thеу juѕt do аѕ you аѕk thеm tо dо, withоut аll оf thе bеllѕ and whistles. Full service brokers can uѕuаllу оffеr more tуреѕ of invеѕtmеntѕ, mау рrоvidе you with invеѕtmеnt аdviсе, and iѕ uѕuаllу раid in commissions.

Whеn it comes tо brоkеrѕ, the biggеѕt dесiѕiоn you muѕt mаkе iѕ uѕuаllу whether tо use a full ѕеrviсе brоkеr оr a discount brоkеr.

If уоu аrе new tо investing, уоu mау nееd tо go with a full service brоkеr tо make ѕurе уоu аrе mаking wiѕе investment dесiѕiоnѕ. Full ѕеrviсе brokers оffеr уоu the skill thаt уоu lack аt thiѕ роint. On thе other hand, if you аlrеаdу have еnоugh knоwlеdgеаblе аbоut the stock mаrkеt, all you rеаllу nееd iѕ a discount broker whо will mаkе уоur trаdеѕ fоr уоu.

Different Stock Market Order Types Available in the Trading Industry

Advancements in technology have contributed to the changes in the trading industry. Most investors now rely on the online trading technology while buying and selling their stocks. Increased use of online brokers in the 21st century has made stock trading faster, cheaper and easier than ever before. The stock market prices keep fluctuating every day meaning that the investors should stay up to date with the current changes in the market. Therefore, Understanding Different Stock Market Order Types is essential in increasing profits from stocks sale.Stock-Market

Different Stock Market Order Types

Some investors would prefer trading on stocks using fixed prices while others do not. The investors also dictate terms that stockbrokers should follow during the trade to ensure maximum profit. The terms and instructions given to the brokers determine the ideal order type depending on the risks the investor is ready to take. Below is a detailed explanation of the most popular orders types:

1. Market Order

The stockbroker has the liberty to execute the trade at the prevailing price in the market. It is the fastest trading method since the buyer aims at getting the lowest available price while the seller’s focus is on the highest offer. Execution of the order is easy, but the price keeps fluctuating especially in volatile markets.

2. Limit Order

The investors using this order have control over the buying and selling prices of their stocks. A stockbroker can only execute a buying limit order only if the stock falls at the limit price or below and can only fill a selling limit order only at the specified price or above. The trader has complete control over the price of the orders unlike the market orders, which depends on the current market price. Remember that any limit order cancels after 180 days.

3. Stop Order

Stop order protect an investor from losses by combining the market order and the limit order. In this order type, the investor gives the stockbroker a particular price, which activates the order. The brokers then execute it as a market order on the future trades.Investment-Decisions

4. Stop Limit Order

The orders work the same way as the stop loss orders, but they become limit orders after activation instead of market orders. The order executes if someone is willing to trade at the specified prices of better prices.

5. Buy Stop Order

It is common with investors looking to protect their profits over a particular stock that they have sold at a lower price. The price for the order is higher than the market price for the buy stop order while the sell stop order usually has a stop price below the market prices.

Bottom Line

Market orders, limit orders, and stop-loss orders are the most common ones in trading. However, investors have additional orders to choose from while getting the ideal stock-orders types. Other types of stock orders you can consider getting include basket orders, day order, trailing stops, and valid till cancelled order. An investor should also consider doing research while getting an order by looking at its time and money saving capabilities as well as the risks involved.