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Background: Business student
Never traded stocks before, this is something I've been interested in for a very long time, have a few basic questions.
1. What are the differences between the markets. Which is better to trade on (NYSE, ASE, etc.)? Do they have the same companies?
2. What is the most convenient way of trading. How often do people trade- on a daily basis? Which method offers the smallest fee?
3. What are some terms I should be familiar with?
Last edited by dansemacabre; 11-24-2013 at 02:01 PM..
Background: Business student
Never traded stocks before, this is something I've been interested in for a very long time, have a few basic questions.
1. What are the differences between the markets. Which is better to trade on (NYSE, ASE, etc.)? Do they have the same companies?
2. What is the most convenient way of trading. How often do people trade- on a daily basis? Which method offers the smallest fee?
3. What are some terms I should be familiar with?
Some stocks and stock options don't trade on the American Stock Exchange (ASE). The same can be said about the Nasdaq. Some of my option orders are only routed to the Chicago Exchange where my broker tries to match my order with the best bid and ask at all the other exchanges, which include the Pacific Exchange as well as Philadelphia.
I can route stock orders to my broker or if I need a quicker trip to the floor of the exchange for my order, I can route to the Nasdaq or NYSE Archipelago.
If you looked at all of the companies that make up the S&P 500 you'll find some on the Nasdaq and some not.
The indexes are the Dow 30, the S&P 500 and the Nadaq 100. And there are others. The Russell 5000 is another one.
Some people think of the Dow when they think of the market going up and down. Most use the S&P 500 as the better barometer.
We often hear about corrections headed our way. Rarely do I hear analysts mentioning a decline in the Dow. They usually say, for example only, "we expect the S&P to pull back 5-7%."
As mentioned by CodeOfSilence when you are ready, you'll shop around for a broker such as Schwab, TD Ameritrade and many others. You'll apply for an account. Maybe you want a margin account and maybe not. Maybe you want access to mutual funds, bonds, etc. maybe not.
There are long term holders like Mario Gabelli and Warren Buffet. Then you have short term traders who mainly use options like the CNBC Options team who have their own websites and services.
Then you have all the various holding periods in between from hours to days to weeks to months or years.
Options are becoming more and more popular with retail customers. And to add to the short term trading, more and more companies have weekly options. A few years ago all they had were monthly options. If you wanted to sell a covered call it would expire or be exercised up to 4-5 weeks out. Now with so many stocks having weekly options, these options traders can do it 4-5 times a month and not once a month. These other investment tools like weekly options has increased the type of trading that the average person might refer to as short term trading.
I can make a trade by phone without a live broker, by phone with a live broker, or online. The commissions for me are highest for broker assisted trades.
As you prepare to get started there are many things to consider, some of which are in your question and much more in the comments you got from CodeOfSilence.
Background: Business student
Never traded stocks before, this is something I've been interested in for a very long time, have a few basic questions.
1. What are the differences between the markets. Which is better to trade on (NYSE, ASE, etc.)? Do they have the same companies?
2. What is the most convenient way of trading. How often do people trade- on a daily basis? Which method offers the smallest fee?
3. What are some terms I should be familiar with?
The only things you need to do to start trading are
1. Have money
2. Open a brokerage account. I recommend Scottrade.
Yes, as simple as that.
You can trade as often as you want, but trading everyday will cost you tons in commission fees. Some people day-trade for a living and can tolerate that.
Terms you should be familiar with: stocks, bonds, ETF's, indices, limit orders, stop-loss orders, quarterly earnings
Background: Business student
Never traded stocks before, this is something I've been interested in for a very long time, have a few basic questions.
1. What are the differences between the markets. Which is better to trade on (NYSE, ASE, etc.)? Do they have the same companies?
2. What is the most convenient way of trading. How often do people trade- on a daily basis? Which method offers the smallest fee?
3. What are some terms I should be familiar with?
You can do research on stop loss orders. I do respect J. Cramer's market prospectives but don't watch fast fire. I do watch when he interviews CEOS on his show.
Cramer does not recommend stop loss orders.
Per another question they may need to be stop limit orders.
Cramer's reasons for not using them is the stock could dip on non negative news and your stop be triggered and you are out and then the stock reverses and continues it's climb upward.
Other choices are put options or "mental stops."
A mental stop is you deciding when you will sell if the stock is X% below what you paid and having the discipline to pull the sell trigger when you are down X%.
Some stocks go down on earnings though the numbers were good. Then the stock washes out and heads back up. Stop loss could have you out of such a stock.
That said Cramer's opinions are avoided by many.
And many investors don't use stop orders for some of the reasons mentioned.
Stops are handy as a stock moves up, you adjust your stop. Moving up means it s going up. A stock can not make a new high until it makes a new high. In a stair step move upward, there will be dips.
You can adjust your stop price in increments as the stock rises.
I own Twitter. The 30 days are up and I want to sell to lock in profits. I sold a deep in the money call and that is my way of setting a stop. If it falls 4-5% then nothing is lost. If I am assigned Dec. 13th then it sells and that was my goal which was to sell and look elsewhere and maybe revisit Tweet in the mid 30's.
A good example is FNSR. The stock got killed upon Cisco's earnings in November. Cisco is one of Finesar's largest customer if not the largest. FNSR fell to near $19.50. As people fugured the guidance FNSR gave back in September was not going to happen. FNSR longs that got stopped out near $20 missed the good earnings and good guidance reported by FNSR on Thursday Dec. 5th and the stock hit near $23.50. And it should be a good stable stock going forward having reported a good quarter and guidance. In this case a stop order would have hurt the FNSR longs.
The OP was talking about "trading" stocks. There is a difference between trading and investing in stocks. True a stop loss order may be triggered on a pullback, that is why it is important to study the chart and see what pullbacks in the past have done and set your trailing stop loss accordingly. I would never place a stop loss on an investment position, especially if it pays dividends. But if I am trading a position I will use trailing stop losses and if it does trigger a bit prematurely I will at least be able to protect those profits at that point. Also remember that just because you close a position at $20 doesn't mean you cannot re-enter at a higher level ($30, $40, $50 ect) if it is still going up and make additional profits off the same name. You can also place stops for part of your position and if it does trigger you will still be able to ride the remaining shares up. I also wait until I have some profits to protect before I place any kind of stop.
You will never be able to buy on the exact bottom or sell at the exact top, so if you miss out on a bit more upside, don't sweat it. Go on to the next name.
Remember stocks are like buses, if you miss out on one, another will be along soon that will take you where you want to go.....
Last edited by Jack Lance; 12-07-2013 at 06:53 PM..
The foremost question is, is the objective to starting building a personal retirement portfolio, or to learn about modern financial markets?
If the objective is investing one's savings to build net worth ("retirement" being a proxy for net worth, whether or not the goal is to quit working), something conservative would be most attractive. "Conservative" typically means very infrequent trades, heavy usage of ETFs or index funds, careful research of companies if you're interested in individual stocks, diversification and so forth. When freshly starting out, the emphasis is on savings - on building the working capital. This is because even spectacularly high annual returns early in your investment career won't matter much. A 100% gain on a $1000 portfolio, repeated for 3 years running, still only takes you to $8000 (net $7000 profit). A 5% gain on a $1M portfolio, repeated for 3 years running, is a profit of $158K.
If the objective is to throw around small amounts of "play money" just to experience first-hand the vicissitudes of modern markets, then I suppose that options or frequent-trades should not be ruled out. It's fun to play around sometimes. But that should not be conflated with a solid investment strategy.
I personally don't believe in retirement accounts that restrict access to your money unless the employer is matching. The best way to learn about the stock market is to research on the internet really. Plenty of information available. It doesn't matter what exchange you buy a stock off of, all that matters is the company themselves.
The way to learn and get better is repetition, and learning from your mistakes. Set in a stop loss, and sell if you lose money and move onto the next stock. Don't hold a stock into a deep loss, and don't let your emotions get the best of you. As others have pointed out a stop loss is a general strategy, not to be applied to every situation.
Scottrade has cheap trades with a nice streaming java realtime quote program. Plenty good for the new investor to get started.
There is one thing I like about trading or investing within retirement accounts, particularly IRA's, that is you can trade without any tax consequences. None of your gains are subject to tax until of course you take distributions, at which point those funds will be taxed as ordinary income. There are a couple of exceptions but they are rare.
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