Stocks And Money Information

How To Get A High ROI In Stock Market Trading

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The Return on Investment (ROI) in stock market trading is the profit you
make on the sale of a security or other asset divided by the amount of
your investment. ROI in stock market trading is expressed as an as an
annual percentage rate. Return on investment (ROI) is stock market
trading includes all the income you earn on the stock. It also includes
any profit that results from selling the stock. If the sale price plus
any income is higher than the purchase price, then you have a positive
ROI. If the sale price plus any income is lower, then your ROI is
negative. Of course as a stock market trader you are always looking not
just for a positive but a high ROI. Below are some ways to ensure that
you get a high ROI in stock market trading: Always know what your buying
The most important thing to do to ensure high ROI in stock market trading
is to acquire as much information as possible about the company you are
planning to invest in. Do some basic analysis to find out if the stock is
worth the price or else you will be gambling. You can always ask other
people to the research for you if you don 't have time. Reliable sources
are websites of major brokerage houses, finance publications and
mutual-fund companies. Don 't confuse smart investing with a bull market.
There are many reasons why you could be getting a high ROI in stock
market trading. One is you could really be investing smartly. Another is
that you could just be lucky enough to be in the right place at the right
time and made money with hardly any effort. Sometimes we feel smart when
the market is going up so we 're tempted to trade more frequently and
take on riskier positions. Avoid active trading It is tempting to trade
frequently especially when your gaining. This is particularly true with
online stock market trading where investing is only a few clicks of the
mouse away. But remember that it 's tough to make money by beating the
market consistently. It is advisable to employ a buy-and-hold strategy to
ensure a high ROI in stock market trading. Mind the taxes Frequent
trading could also be very costly particularly so with high income taxes
triggered by profits that could reach as high as 40%. To get a high ROI
in stock market trading therefore, it is advisable to buy and hold for a
period of at least a year so you would qualify for the lower capital
gains rate of 20%.

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If you are a long term investor in stocks, there is a very exciting investment plan. It is most suitable plan both for the beginners and veterans in stock market investments. Most of the investors, whether new or old, are constantly haunted by just one fear: As soon as you start investing in the stock market, the price of your stock will tumble and it will spiral up the moment you sell out your shares most probably, at a loss.

This is not just a phobia, an imagined fear. It is a very real cause to worry especially if you are trying to catch moves or time of the markets. Not only the lay investors, even the professional traders and fund managers also have a hard time gauging the wayward, volatile and unpredictable market moves. Since you are a long-term investor, you do not want to play this type of guessing game with your hard earned money. You want to be on a surer footing. You, therefore, want a strategy that is proven, conservative and delivers good value on your investment over the long run. This strategy is called Dollar Cost Investing.

This type of investment works on the premise that if you buy the stocks of the same dollar amounts on regular basis, the unpredictable fluctuations in investment is squared off over a certain period of time. You basically buy more stock when the prices are low and buy less when the market is high since you are always investing the same dollar amount. You do not have to worry about buying the shares on higher costs and selling them on low. This happens because the risk of the timing is reduced. All you need to do is to consistently invest the same dollar amount on regular basis. If you purchase index funds, your investment will grow with the market. Obviously you are more in tune with the market over the long term.

This plan can be illustrated by an example. Suppose you are not investing on the principle of dollar cost averaging. Instead, you are buying the same amounts of shares every month. You buy, say, 100 shares on the 15th of every month and you continue to buy stock at different prices for six months.

Suppose you buy 100 shares in the first month @ $30, second month@ $40, third month @ $50, fourth month @ $90, fifth month @ $ 60 and in sixth month @ $30.

Suppose your total investment over six months comes to be $ 30,000 and you buy 600 shares. Your average cost price per share would be $50.

Now suppose you buy your stock on the basis of dollar cost averaging. According to it, you spend the same amount that is, $ 30,000 spread over a period of six months so that you spend $5000 every month. Let us say you invest the same amount every month and buy 166.66 shares@ $30 in the first month, 125 shares @ $ 40 in the second month, 100 shares @ $50 in the third month, 55.55 shares @$90 in the fourth month, 83.33 shares @ $60 in the fifth month and 166.66 shares @ $ 30 in the sixth month. You buy a total of 697.2 shares for $30,000. If you divide $30,000 by 697.2, your average cost per shares comes to $43.02.

It is obvious that you have invested in fractional shares in the second investment plan. Your saving per share is huge although you are investing the same dollar amounts but buying shares fractionally. You actually buy more shares when the price is low and less shares when the price is high. You not only wind up with more shares, almost 700, at much less average price of $43 as against $50 in the first instance.

It must, however, be noted that it is much easier to make such purchases in a rising market when your investment appreciates. You have to be pretty much disciplined and stick to your strategy when the market is falling. You must also be aware of that each dollar buys more in a falling market, which potentially leads to higher gains in the future as the market recovers.

Although it is impossible to predict the market trends in the future, but historically, the market has risen over the long term and it takes the conservative investors right along with it.

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