Definition of Stocks

The equities market allows you to gain voting rights and purchase ownership in a publicly traded company.

The market is categorized into 4 parts: Indexes, Sectors, Industries, and companies. It is traded in shares and moves in penny increments.

There’re 5,400 companies to choose from; that does not include OTC or the “Grey Market.”  

It is traded primarily on the NYSE and the NASDAQ and is subject to all appropriate regulation.

Benefits of Stocks Trading

Some companies provide a dividend payment for the shareholder.

It provides variety by giving the trader or investor over 5,400 companies to choose from.

This allows you to select volatility levels and prices that you are comfortable with.

Cons of Trading Stocks

Low rate of return due to high capital requirements $25,000 minimum account balance to day trade Settlement Cycle: it can take up to 3 days to settle and be able to access your capital. This creates down time between trading opportunities and most experience sluggish withdrawal process.

Extreme gaps are very common due to the markets being closed 17.5 hours each day, not including weekends.

Due to these lengthy closures, a “stop loss” becomes ineffective in minimizing risk. The educated trader uses Options and Futures to hedge this overnight risk. This market is very sensitive to news announcements regarding the company, its industry, and the overall economy; therefore traders can experience extreme volatility.

Open 5 days/week and 6.5 hours per day; 9:30am EST TO 4:00pm EST Monday – Friday.

Closed on weekends and all major US Holidays.

Ideal Account Size for Stocks

To gain access to liquid equities and have flexibility of trading frequency, a trader would want to have at least a $30,000 account.
An educated trader/investor should be aware of appropriate account size, position sizing, and risk management when trading or investing in any market.

Types of Accounts for Stocks

(Traded through a custodial firm)
Various Entity Structures (LLC, Corp, LP, etc.)

Ideal Equities Trader

Someone that works full time and can’t be in front of the computer in the morning for day trading

Someone who has less than $10K to fund a trading account for income

Someone who has seven-figure accounts to hedge fixed income currency risk

Someone who is looking for a simple swing trading market

Novice Mistakes

Not using appropriate risk management; for example—using Options or Futures to hedge for overnight risk.

Not using the Futures market to determine overall market direction.

Focusing on a limited number of companies rather than analyzing sector rotation to

Misunderstanding the “Globex” sessions in the Futures and Forex markets and how that affects the Stock market open.

Unaware of major news announcements in the company as well as the overall economy that have varying degrees of effect on the Stock market.

Focusing on the company’s fundamentals rather than evaluating the actual Stock (price action) that dictates profitability.