Trading stocks, NYSE Trading floor
Trading stocks in the stock market doesn’t completely revolve around just buying and selling shares like a day trader or long-term investor. Yes, purchasing stocks allows a buyer to own a piece of a company and if the company does well it’s stock’s value increases or if the company suffers, the stock’s value decreases. The goal is to buy stock at a low price in a company with a promising future then sell when the company reaches a peak. This is how one can maximize profit by trading stocks however there is another important alternative called stock options. Trading stock options involves a contract which allows a trader to buy or sell the stock at a determined price by a certain deadline.
Trading Stocks
Trading stocks can be more risky than trading stock options because, with stocks, it is possible to lose everything (think Worldcom or Enron) but if you are trading options downside is limited to the cost of the option which is a fraction of what the cost of holding the stock is. Each stock option is the equivalent of controlling 100 shares so the risk exposure is limited to the cost of the option’s premium versus the total cash outlay for owning 100 shares outright.
Trading stock options is more complex than trading stocks but can be overcome with a little bit of education. With trading stocks you have to pay close attention to the stock’s price action and earnings history plus a little bit of understanding of the company you are about to invest in. You do this in hopes that the company prospers and the value of your stock increases. With trading options there is an additional step not required of stocks. A broker has an application form which they must have the potential option trader complete. This form shows the experience and understanding the potential trader has, and the broker is to use that information to appropriately guide them. If a broker allows an inexperienced trader to trade on a level not suited for them and that trader loses a substantial amount of money, the broker can be held accountable.
Stock Trading
Stock trading and options trading occurs within different exchanges. Trading stocks takes place in the Nasdaq
Mike trading stocks on the Hong Kong Exchange
Stock Market, the New York Stock Exchange or the American Stock Exchange. Trading stock options occurs on 5 exchanges, Chicago Board Options Exchange, the American Stock Exchange, International Securities Exchange, the Pacific Stock Exchange and the Philadelphia Stock Exchange. A stock can only be listed in one of the three of it’s exchange but an option can be listed in all 5 of it’s exchanges.
Trading stocks is the traditional, well known way to deal within the stock market. Another way to potentially profit is by trading stock options. Now that you know the difference between them, perhaps you know which one you’d like to pursue.
Trading Stock Options – The Basics
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