Day Trading - Defining A Stock Day Trading

The definition of day trading is that stock day traders hold their securities for only one day. They close out their positions at the end of every day and then start all over again the next day. By contrast, swing traders hold securities for days and sometimes even months, investors sometimes hold for years. The short term nature of day trading reduces some risks, because nothing can happen overnight to cause big losses. Meanwhile, many other types of investors go to bed thinking their position is in great shape only to wake up the next morning to find that the company has announced terrible earnings or the its CEO is being indicted on fraud charges.

But there's a flip side, the day trader choice of securities and positions has to work out in a day its gone. Tomorrow does not exist for any specific position. Meanwhile, the swing trader or the investor has the luxury of time, because it sometimes takes a while for a position to work out the way your research show it should. In the long run, markets are efficients and prices reflect all information about a security. Unfortunately, it can take a few days of short runs for this efficiency to kick in.

Stock day traders are speculators working in zero sum markets one day at a time.

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Cash and Margin Stock Trading - OTC Stocks / Stock Awareness Programs

Determining how much money you need in order to make your first trade can be very tricky. The exact amount amount depends on a number of factors, including your market selection, the size of the transaction (number of stock shares) and the risk on the trade. It also depends on whether you want to do your trade using a margin or a cash account. Cash trades requires you to put up 100% of the money in cash. All costs of the trade need to be in the account before the trade is placed. For example, if you wanted to buy 100 shares of stocks of EMC at 85%, you would have to pay $8,550 plus commissions up front. If EMC were to rise to 90.5 the account would show an open position profits of $500, or a 5.8% return on investment (ROI), not including commissions.

In contrast, margin trades allow you to put up a percentage of the total cost of the trade amount in cash and the rest is "on account". The term "margin" refers to the amount of money an investor must pay to enter a trade, with the remainder of the cash being borrowed from the brokerage firm. The shares you have purchases secure the loan. Most traders prefer a margin account because it allows them to leverage assets in order to produce higher returns. In addition, a margin account is usually required for short positions and options trading.

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Short Selling Stocks

If a market is trending down there is a technique known as shorting the market that can be used to take advantage of a drop in prices. Lets say you are watching a stock and anticipate a price decline. You can borrow the shares from your brokerage firm in order to sell them at higher price (selling them short) and at a later date buy them back at the lower price to replenish your brokerage's supply. When you short the market, your receive a credit in your trading account reflecting the proceeds of the sale. That is right. As long as you have enough money to cover the margin requirements of the sale (usually 150% of the total credit received from the sale), your broker will lend you shares of stock to sell. Sounds inviting but unfortunately, sooner or later you have to cover the short by giving the shares back to the brokerage - hopefully by purchases them back at a lower price on the open market. This settles the account with the broker and you get to keep the change. Therefore, your profits on a short position is equal to the amount the stock has moved down between the time you sold short the shares to open the position and the time you bought shares to close the position (minus the commissions).

Definition:

Shorting the market: The sale of shares that a seller does not currently own. The seller borrows them (usually from a broker) and sells them with the intent to replace what he or she sold through later repurchase in the market at a lower price.

Cover the short:

To buy shares of stock to replenish those borrowed from your brokerage to place a short sale.

What is a stock?

Stock is another name for the shares, or partial ownership of a corporation. If you wish to buy a stock, you so so by purchasing fractional units of ownership called shares. A share's value is the result of multitude of factors. Discerning whether the price of a share is moving - either up or down - is the crux of the investing game. There are two kinds of shares: commons and preferred.

Ultimately, the choice between common and preferred shares comes down to risk. If you want a more limited risk-reward situation, then preferred shares are the way to go. But the majority if investors buy stock for the growth opportunities they provide and are therefore willing to assume the inherent risks that accompany them.

Perhaps the most defining aspect of common stock is determined by its place in the time line of company development. In many ways, a company is a living entity. From birth to old age, it passes through a number of stages that control its daily movements. To become acquainted with a company, it is vital to know which growth phase the company is in.

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Micro Cap Stocks - OTC - Pink Sheets Stocks (Risk and Rewards)

Micro caps - OTC - Pink Sheets stocks have a market capitalization of less than 150 million. They can be extremely risky investments because a significants percentages of companies fail early in the development cycle for a variety of reasons: poor management, failure of a marketing strategy, customer rejection of goods or services offered and so on. If you decide to venture into the realm of mico-caps, make sure you do your homework first. We are not saying that you can not or will not make a profit (or even a fortune) just be very careful and maybe your rewards will out weigh the risk!!

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How Stocks are broken down:

Large Caps Stocks (blue chip stocks)
-- More than 5 Billion

Mid Caps Stocks
-- $500 million to $5 Billion

Small Caps atocks

-- $150 millions to $500 Millions

Micro cap

-- Less than $150 Million
-- Also knows as Penny Stocks, OTC stocks, Stocks priced under $2.

What is small caps stocks?

Small caps have a market capitalization of between $150 million and $500 million. They offer traders the opportunity for fast growth and are usually much cheaper than mid caps or blue chips stocks. Lower starting prices give them the ability to generate dramatic price gains. Unfortunately, they also have a greater capacity for failure. Small caps or OTC stocks rarely issue dividends because of their need for capital to fuel further growth. They are often undervalued because institutional coverage has not begun or analysts are in the initial stages of research and therefore their stories haven't been disseminated very well. Institutional investors often cant buy into them because the smaller companies do not meet fiscal requirements that govern the investments of many money managers and pension funds. They may be overvalued because investor sentiment has exceeded even optimistic valuations, removing fear from buying and selling decision thus driving up the price. The sudden and sometimes extreme pullbacks there stocks experience are sobering events. In spite of that, small caps are attractive investments because they offer investors the chance to get in on the ground floor of the next big company.

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