Stocks And Money Information

Normally it is advisable not to trade in socks. Stocks are meant to be invested. If you however wish to trade in stocks the preference should be in stock options. Many may have told you the options are very risky financial instruments and large sums of money can be lost. But the fact is that options are far less riskier than directly buying the share of the company in the market.

Let us analyze stock ownership. When you trade in a stock, the price can go up or down or it may merely trade sideways. If you buy a share and if its price goes up you make money else you loose. If its price moves sideways you still loose the financing (interest) costs. You also loose brokerage charges. There is also an opportunity costs as you are not involved in other potentially profitable trades and investments.

You can also short sell a stock - sell a stock which you do no own by borrowing with the intention of buying back at lower prices and return the stock. The price difference is your profit per share. Here too same risks are likely. When the price of the share you have sold goes up instead of down you loose the money as you have to buy it back at higher price.

Even if you do not want to trade and merely want to own a stock that too is risky
If you purchase 100 shares of a $100 stock it will cost you $10000. And if you buy it on margin funding you pay 33% of the cost but it means you still have to shell out $3300. That is significant money to outlay. And, more importantly it is a lot of money to put at risk. Especially as you have a mere one in three chance of the stock moving in the right direction. Plus as stocks don't trend all that often you not only need to pick the right direction, you also need to be able to pick the right time.

So stock trading is not that easy but is very costly. So you can try trading in sock options.
For a start you only have to invest about 3% of what the stock was worth and yet you still control the same 100 shares. In the example above, instead of investing $10000, we might only have to outlay $150. If we select the right strategy, we can profit no matter whether the stock price goes up, goes down or even goes sideways. And finally, our risk is limited. The maximum we can lose is the amount we put into the trade $150 in the example above.

But the best thing of all is the leverage that options provide. In the above example, if the stock price goes up by $10, the profit on the stock trade would only be 10%. If we buy on margin it would be 33%. But with this increase in stock price the value of the option might increase by 100%. And so the profit on the trade would be 100% - or ten times that of the straight stock trade.

Trading in stock options is actually less risky and far more profitable. If you devote a bit of time in studying the trends and understanding options you can make a fortune.