Category: Stock Trading

Introduction

It can be a minefield knowing how to buy stocks online. Plenty of providers are more than willing to facilitate your investment. However, finding the one that works for you should be the key determining factor. Even though retail traders used to operate in this market before the internet, the advances that the internet has brought to society have completely changed the game.

The ever-expanding industry is big business for stockbrokers. It is essential to filter out the platforms with higher fees or will charge you more for the type of trading you undertake. For instance, if you are a day trader who executes more trades than a swing trader, you want to examine the individual fees. Some brokers will charge a flat rate for specific packages. 

Day trading includes different types of methods, such as scalping. Of course, you can scalp in other markets such as forex, too – but make sure you notice the fees you are charged are crucially important. We appreciate you may have already grasped this concept and are saying to yourself, “Yes, but how can I buy stocks online?” – don’t worry. We will be looking at the key things you should do when you buy stocks online and how you can make the most of your trading journey.

Can I Buy Stocks Online?

Yes, it isn’t just institutional traders that can buy stocks. However, they are the ones that move the market more than retail traders. A retail trader is somebody like you or me who uses their savings as their capital to try and turn a profit on the stock market. Recent reports have shown that this type of trading has hit an all-time high in trading volume.

Often it is traders who trade outside of their full-time job. This can be more problematic, particularly in stock trading, as the stock market is open solely between business hours. Of course, you can still trade outside these hours, but it is a different type of trading than operations during a trading day. 

Other markets, such as forex or cryptocurrency, are open 24 hours daily. For example, the forex market isn’t active over the weekend, but the cryptocurrency market is available 24/7. Traders have more flexibility in these markets if they have a full-time job. Still, it can also be detrimental, as other major financial hubs in different timezones can cause peaks and dips at inopportune moments.

An institutional trader is somebody who trades professionally. This can range from portfolio managers to large investment banks such as Goldman Sachs, JP Morgan or Deutsche Bank. Institutional traders who operate on the trading floors of some of these financial behemoths will manage risk in the tens, sometimes hundreds of billions. 

Being aware of how much pull these markets have is vital to note. Even if you are trading with a sizeable portion of your net wealth, you are still a drop in the ocean compared to these companies.

Finding Your Feet In The Market

The stock market is one of the more traditional markets. However, individual financial hotspots can see multi-billion-dollar trading volume daily. This is exciting as a retail trader, and the wealth of opportunity in this market drives you to find out how to buy stocks online. 

Before you begin to place your hard-earned money on an exchange to purchase stock, starting with small steps is a good idea. For example, find out the sort of news that drives the market. You can do this by following some prominent stock traders on social media. In addition, you can subscribe to a reputable finance magazine to get a better indication of what drives the price action.

Finding an online stockbroker that provides you with plenty of information on buying and selling stocks online instead of just looking to obtain a sign-up fee is a good start. There are plenty of reputable stockbrokers online, depending on the type of trading you want to implement into your overall trading psychology.

Another good point is that you should focus on simplistic strategies at first, such as spot trading. Then, once you have a good grasp of the market and understand basic concepts, you can look at more specialist instruments such as options trading or futures. 

You must understand that even if you begin to grasp how the market works, you can still lose your money trading. So your capital is always at risk, and futures trading, in particular, carries much more risk than standard trading. This is one of many lessons in learning how to buy stock online. 

How Do I Buy Stocks Online?

There are hundreds of reputable websites online. Some banks offer a facility through specialist accounts. You can also use free trading platforms. Robinhood and Charles Schwab are two examples of online brokers that allow you to buy stock online without paying fees upfront or any commission on your trades. 

An online stockbroker is the most straightforward way of buying stocks. Irrespective of whether you want to trade or hold for a considerable period as a long-term investment. 

Although online stockbrokers are the most popular way for retail traders looking to buy stocks online, there are other avenues. 

A Full-Service Stockbroker

Many wealthier clients will opt for the services of a full-service stockbroker. This is because they often act as middle management for their wealth. A full-service stockbroker is a financial professional who provides various services and advanced coverage when looking to buy stocks online. These services include but are not limited to 

• Investment Advice
• Portfolio Management
• Research And Analysis
• Trading Execution 
• Retirement Planning
• Tax Advice
• Estate Management

Large financial institutions such as investment banks or prominent brokerage firms employ these stockbrokers. Generally speaking, if you are just starting, plenty of online stockbrokers do not charge a fee, and their platforms and mobile apps are easy to use. A full-service stockbroker is usually for a small percentage of incredibly wealthy clients. 

Discount Brokers

If the idea of a full-service stockbroker interests you but you are scared by their high rates, a discount broker might be a better option for you when looking at how to buy a stock online. 

Discount brokers offer a similar service to full-service brokers but provide a less comprehensive service for a smaller fee. Due to the explosion of retail traders looking to enter the market but with limited knowledge, the discount broker sector has become more prevalent for investors looking to buy stocks online in recent years. 

Given that their management fees are lower, and in some cases, the administrative costs are minuscule, this can be the perfect middle ground for beginner retail traders. Using an avenue of tried and tested professionals who have proven experience in how to buy online stocks is a wise move for people who are still getting to grips with how the intricacies of the market work. 

Can I Buy Stocks Online Directly From The Company?

Maybe you want to be more hands-on and don’t want to employ the services of a middleman or an online stockbroker. Many corporations allow you to do this if you’d instead go directly to the company. Depending on the company’s size, some will offer stock to existing employees. 

If you are not fortunate enough to have a job at Apple, you can buy stock directly from them or any other company that provides the facility. You can do this via two methods:

• A Direct Stock Purchasing Program (DSPP)
• A Dividend Reinvestment Plan (DRIP)

If you use either of these methods to buy stocks online, you can detour around fees you can accumulate through some brokerages and interact with your company of choice directly.

Stock buybacks are another method that big corporations use. This is when they buy back stocks to conserve the stock price or dilute volatility. When a company instigates a buyback, they usually have more stocks to purchase directly if you want to use something other than a broker.

How To Buy Stocks Online With Small Capital

“Small capital”, by definition, is subjective. Small capital to Goldman Sachs could be $50 million, and significant capital to a retail trader could be $500. This depends on your situation. No two traders are the same, and some people who buy stocks online are more adept to the risk management aspect of trading and investing. It is challenging to understate just how vital effective risk management can be if you’re a beginner. 

Buying stocks online doesn’t matter if you’re looking for a quick short-term profit or a long-term investment. So long as you implement plenty of risk management into your approach, you can help insulate yourself from volatile market conditions. 

Stocks don’t have the same level of risk and volatility as other markets, such as cryptocurrency. However, certain stocks can, and if you invest in penny stocks, for example, these investments are notoriously volatile for misselling and fraud, such as the infamous Wolf of Wall Street. 

This is why market research is so important. So long as you know how to handle the risk and what to look for, you should be able to build yourself a decent portfolio.

Can I Use A Mentor To Help Me Buy Stocks Online?

Yes, of course, if you are looking to enlist the help of a specialist, you can do this across a range of markets. If you are trading forex, for instance, you can look to onboard a mentor to help you navigate the markets to give you a better understanding. However, plenty of stockbrokers offer this facility if you want to buy stocks online. 

Firstly, you must ensure the mentor is the right person for you. For example, do they have a proven track record? Do they use risk management tools properly? Do other traders recommend their service?

A full-service broker can act as a mentor, but they are essentially fund managers. A mentor is a teacher who will one day direct you into navigating these turbulent markets for yourself. Therefore, picking wisely could be the make-or-break decision which turns your stock trading venture into a success or a failure.

Where Do I Buy Stocks That Interest Me?

Stockbrokers can tailor many of the methods we have discussed today to suit your needs. For example, online stockbrokers can recommend certain shares depending on what type of market you want to invest in. If you’re looking for ESG investments, stockbroking platforms and stockbrokers that are more hands-on will be able to recommend various investments.

You are at an advantage if you can control your emotions and follow your plan. This is the number one reason retail traders lose money. We understand that watching your portfolio depreciate rapidly is uncomfortable. 

So long as you use the money you can afford to lose and understand that your capital is always at risk, you can buy stocks online with a clearer head. However, irrespective of how well you know the markets, you can still lose your investment, so it is important not to overcommit funds when buying stocks online. 

Conclusion

Knowing how to buy stocks online is an essential step on your journey. Remembering that there are no shortcuts when trading or buying stocks online means you can approach the challenge with a level head. If you are practical and aim for modest, marginal gains, this is far more realistic than aiming for one big home run. 

Take time to weigh up all these options we have discussed today and decide what technique and method is best for you. Once you have decided, you can buy stocks online and hopefully turn them into a passive income stream.

Introduction

Stocks vs bonds: these are two tried-and-tested markets that have been around for eons, compared to forex and the more recent crypto. But what’s the difference between stocks and bonds?

Essentially, stocks represent ownership of companies, while bonds are loans made to governments and large businesses. The second key distinction is how money is made or lost. Stocks rely on a company’s price depreciation or appreciation, while bonds rely on interest.

Let’s uncover the stocks vs bonds differences in more detail here.

What are stocks?

Let’s look at the first part of our stocks vs bonds discussion. Stocks (equities or shares) are financial instruments denoting fractional ownership of a traded company. Most stocks are traded on stock exchanges (check out their trading hours here), a marketplace for businesses to issue their shares.

The purpose is for the company to raise external funding from private investors. Once they meet the requirements for being listed, they determine how much equity they will offer to shareholders. 

This portion is sold as shares at a set price during an initial public offering (IPO), the first official day the underlying company is listed.

Based on several technical and economic factors, the stock will decrease and increase in value over time. This means that investors can profit by buying and selling. 

Here is a candlestick chart of Tesla, one of the most popular stocks globally.

Some shares offer shareholders dividends (on top of any profits from price appreciation), a portion of the company’s profits.

Another method of trading shares is through derivatives or CFDs (contracts for differences). This means you don’t own the actual stock but still have the benefits of trading its price for profits and losses.

What are bonds?

“The name’s Bond, James Bond!” Puns aside, what is a bond? Bonds are loans offered by investors to various entities, most commonly corporations and governments. It’s a way for ordinary individuals to become lenders for large institutions in return for interest payments.

Bonds are another method of financing away from traditional banks. Governments always need money to fund infrastructure and daily operations. Similarly, a company requires cash to grow their business through hiring employees, buying equipment, investing in property, etc.

So, a bond is like a crowd-funded debt instrument allowing thousands of investors to become lenders.

The borrower or issuer (the entity needing the loan) creates a bond with details of the loan term and the frequency of interest payments. Like traditional credit, there is a maturity date where the principal plus interest should be paid to the lender.

Interest yields (known as coupon rates) worldwide range from 0.5% to 14%. The longer the loan term, the higher the rate is generally.

The most popular bond in the world is the 10-year Treasury note (US10Y) issued by the American government. It’s a bond paying fixed interest every six months for a decade. 

Now, as with stocks, you don’t have to own the actual bonds. Instead, you can trade the instrument as a derivative. There are many bond markets (aside from US10Y), like the Euro Bund (EUBUND) and UK Gilt (UKGILT).

Below is an image of a chart for the US10Y yields since 1912.

Like stocks, traders can analyse these instruments using technical and fundamental analysis.

Stocks vs bonds: key differences

By now, it should be clear what the purpose of each market is. So, let’s look at the key differences between stocks and bonds investments.

• Purpose: The objective is the first obvious contrast between bonds vs stocks. A stock is an investment in a listed company. On the other hand, a bond is a loan made to corporations and government entities.

• Return type: This difference is perhaps the most significant. Returns from stocks come by way of capital gains. This means that you only make money if the price is lower than what you sold it for or higher than what you bought it for.

Meanwhile, bonds are fixed-income investments. The return is, in theory, guaranteed in the form of interest payments. It’s one reason why experts consider bonds as the safer investment.

Note: interest payments don’t apply if you’re trading a bond as a derivative or CFD.

• Risk: This is an extension of the last difference. Generally, there is more risk involved (but higher returns) with stocks, given the number of factors that can influence their prices. Bonds are the ‘safer’ options because they have predictable returns.

• Trading arena: Traditionally, the trading of most stocks happens on exchanges like the New York Stock Exchange and NASDAQ. Contrarily, many bonds are traded ‘over the counter.’ This means the trading doesn’t happen on a public platform but rather through brokers.

Note: Brokers are financial services providers offering derivatives. So you can trade stocks or bonds with them.

Benefits and drawbacks of stocks

So why would you consider stocks over bonds? (and why you may decide against it)

Pros

• Better returns: The historical performance of stocks far surpasses that of bonds. Mega corporations like Amazon, Apple, and Microsoft have annualized returns above 20%. This excludes individual yearly performances, which, in some cases, have exceeded 100%.

These are just the blue-chip shares. Other lesser-known stocks have performed way better. Meanwhile, bonds are slow-growing assets. As previously mentioned, bonds pay between 0.5% and 14% interest yearly. 

The US 10-year treasury bond has averaged around 3.7% in the last few years, a far cry from stocks.

• Broader scope: There are tons of different stocks you can follow, like blue-chip, growth, dividend, defensive and penny stocks, among others. On the other hand, the selection of bonds is limited.

• More accessible: The average person will know what shares are, but less so on bonds. Also, you need to invest far more money in bonds to achieve a fraction of stock returns that you can receive with less capital.

Cons

• More risk: The most apparent downfall with equities is, of course, volatility. Although stocks have performed far better, there are many periods where they haven’t. So, this market is less stable compared to bonds.

Benefits and drawbacks of bonds

So why would you consider bonds vs stocks? (and why you may decide against it)

Pros

• Stable returns: Bonds are less volatile than stocks, meaning their performance is more reliable. If you invest in bonds (not as a CFD), your interest payments are almost guaranteed because the likelihood of default has been low historically.

Cons

• Weaker performance: Despite having better stability, the returns are measly compared to equities. Also, it’s a myth that bonds are risk-free. Aside from the rare possibility of defaulting, interest rates fluctuate. Subtle risks like inflation can lead to losses or investors making less money than expected.

• Less accessible: Unless you’re trading the bond as a derivative, you need more funds to invest in bonds than stocks. Also, bonds are less popular, making them harder for the average person to understand.

Conclusion

When looking at stocks vs bonds, it’s quite telling that the bond market is technically larger in value than the equities market. After all, debt is what fuels most economies. Yet, despite this fact, stocks have more benefits.

Like bonds, experts have long considered shares among the best long-term investments. The only difference is the performance is far superior. This is because they increase as companies become more valuable, boosting their bottom line.

On the other hand, bonds are not income-generating assets but simply interest payments. Still, many investors choose bonds to achieve better returns than they would from a savings account. Also, it is common for them to invest in stocks simultaneously. 

Here, they have the potential to achieve multi-bagger returns while making ‘slow money’ from bonds; double impact, if you will!

Introduction

We know that time is of the essence for a popular financial instrument like stocks. This naturally leads to the question: what are the stock exchange trading hours? Although there are about 60 major exchanges for trading shares globally, they follow more or less the same time structure.

Here, we’ll look at the stock market trading hours today for the most popular exchanges, ranging from the New York Stock Exchange (NYSE) to the Euronext.

How stock trading hours work

Most exchanges follow a typical Monday-toFriday nine-to-five structure, unlike markets like forex that operate 24/5 (learn more about forex trading) or crypto that runs 24/7. 

Exceptions include exchanges from Arab countries like Saudi Arabia and Israel, where trading starts on Sunday and ends on Thursday.

Also, no stock market holiday trading hours exist. Exchanges are closed on days like Christmas Day and New Year’s Day, along with those specific to a certain country. Some may operate for a limited time during these periods.

• Stock market trading regular hours: This period represents the standard operating times for a particular stock exchange, where trading volume is at its highest. 

• Stock market pre trading hours and post trading hours: These are trading periods outside exchange hours. This activity happens on what we call ECNs (electronic communication networks. In simple terms, this includes private brokers that offer trading away from exchanges. 

Previously, this was only available to elite investors, but the average person now has access. Extended stock market trading hours are used for traders to react to certain news or events before the markets open. Also, it’s a way of getting a leg up against other participants. 

However, there are several risks with pre and post-market hours like wide spreads. Also, price uncertainty is another downside because only limit orders are placed (not market orders).

What are stock trading hours for the most popular exchanges?

Let’s look at the stock market trading hours for the following exchanges:

• NYSE
• NASDAQ
• Shanghai Stock Exchange
• Tokyo Stock
• Euronext
• Hong Kong Stock Exchange
• London Stock Exchange

NYSE stock market trading hours

Let’s start with the largest exchange globally by trading volume. Here are the US stock trading hours for the NYSE:

(Note: EST is Eastern Standard Time)

• Market: 09h30 to 16h00 EST Monday-Friday
• Pre-market: 04h00 to 09h30 EST Monday-Friday
• After-market: 16h00 to 20h00 EST Monday-Friday

NASDAQ stock market trading hours

Up next is the second-largest equities exchange worldwide, the NASDAQ. This platform follows the same structure as the New York Stock exchange trading hours:

• Market: 09h30 to 16h00 EST Monday-Friday
• Pre-market: 04h00 to 09h30 EST Monday-Friday
• After-market: 16h00 to 20h00 EST Monday-Friday

Like the NYSE, the NASDAQ is closed for ten holidays, namely: 

1. New Years Day
2. Martin Luther King Jr. Day
3. President’s Day
4. Good Friday
5. Memorial Day
6. Juneteenth
7. Independence Day (early close at 13h00 on 3 July; closed on 04 July)
8. Labour Day
9. Thanksgiving Day (early finish on 23 Nov; closed on 24 Nov)
10. Christmas Day

Shanghai Stock Exchange (SSE) stock market trading hours

The SSE is China’s most prominent stock exchange and the third-largest worldwide in market cap. Here are its trading hours.

(Note: CST is China Standard Time)

• Market: 09h30 to 11h00 and 13h00 to 15h00 CST Monday-Friday (closed at lunch/intermission).
• Pre-market: 09h15 to 09h25 EST Monday-Friday
• After-market: 15h00 to 15h30 EST Monday-Friday

Unlike the US exchanges, the SSE observes fewer holidays where trading is halted.

1. New Years Day
2. Chinese New Year
3. Labour Day
4. Dragon Boat Festival
5. Qingming Festival
6. National Day
7. Mid-Autumn Festival

Euronext stock market trading hours

Euronext (European New Exchange Technology) is the fourth-largest stock exchange globally and the biggest in Europe. It covers equities from several regions, namely Amsterdam, Brussels, Dublin, Lisbon, Milan, Oslo and Paris.

The exchange’s stock trading hours are  09h00 to 17h30 CEST (Central European Summer Time). Monday-Friday. Euronext doesn’t have pre-market and after-market sessions.

Also, interestingly, the exchange is closed only for five holidays a day.

1. Good Friday
2. Easter
3. Labour Day
4. Christmas Day
5. Boxing Day

Tokyo Stock Exchange trading hours

The Tokyo Stock Exchange (TSE) is the world’s fifth-largest exchange for trading shares. It is under the Japanese Exchange Group, which also controls two other prominent Japanese exchanges.

Like Euronext, the TSE doesn’t have pre-market and after-market sessions. Its primary trading hours are 09h00 to 11h30 and 12h30 to 15h00 JST (Japan Standard Time) Monday-Friday. There is lunch or intermission for an hour.

The exchange is closed on the following holidays (almost all of which are specific to Japan):

1. New Years Day
2. Market Holiday
3. Vernal Equinox
4. Coming of Age Day
5. National Foundation Day
6. Emperor’s Birthday
7. Showa Day
8. Culture Day
9. Greenery Day
10. Children’s Day
11. Marine Day
12. Mountain Day
13. Constitution Memorial Day
14. Respect for the Aged Day
15. Sports Day
16. Labour Thanksgiving Day
17. Autumnal Equinox
18. Market Holiday

Hong Kong Stock Exchange stock market trading hours

The Hong Stock Exchange is the eight-most prominent exchange globally and the third-largest in Asia. Here are its trading hours:

(Note: HKST is Hong Kong Standard Time)

• Market: 09h30 to 12h00 and 13h00 to 16h00 HKST Monday-Friday (closed during lunch)
• Pre-market: 09h00 to 09h30 HKST Monday-Friday
• After-market: 12h00 to 13h00 HKST Monday-Friday

As both are from the same continent, the Hong Kong Stock Exchange observes many of the same holidays as the SSE:

1. New Years Day
2. Chinese New Year
3. Good Friday
4. Easter
5. National Day
6. Labour Day
7. Vesak Day
8. Dragon Boat Festival
9. Qingming Festival
10. Double Ninth Festival

London Stock Exchange trading hours

The London Stock Exchange (LSE) is the 11th-largest stock exchange in the globe. It covers tons of stocks from the United Kingdom. 

So, what are the trading hours of London Stock Exchange?

(Note: GMT is Greenwich Meridian Time)

• Market: 08h00 to 16h30 GMT Monday-Friday
• Pre-market: 05h05 to 07h50 GMT Monday-Friday
• After-market: 16h40 to 17h15 GMT Monday-Friday

The LSE is closed for the following holidays:

1. New Years Day
2. Good Friday
3. Easter
4. Early May Bank Holiday
5. Spring Bank Holiday
6. Summer Bank Holiday
7. Christmas Day
8. Boxing Day

Conclusion

As you can see, the stock market is open for many hours, giving investors plenty of opportunities to find great trading opportunities. 

So, which are the prominent trading hours? Although exchanges are unique, experts generally say the ‘opening bell’ (start of the day) and the ‘closing bell’ (end of the day) are the best. 

Historically, Mondays and Fridays have been days of highly anticipated activity and movements. 

So, whether you’re a day trader or a swing trader with a full-time job, always be aware of the stock trading hours for your relevant exchange.

Introduction

Searching ‘stocks and options‘ on Google yields about 288 million results. This tells us that both of these financial markets are insanely popular. Whether you’re on YouTube, Facebook, Twitter, Instagram or any other online community, you’ll find someone talking about stocks or options.

The average person can provide a basic definition of what a stock is. But options are a bit more complex to understand. You’d be hard-pressed to find many people who can differentiate between stock trading vs options trading.

If you had questions like ‘can you trade stocks as options’ or ‘are options better than stocks,’ we have you covered here.

(If you like forex and want to know the difference between that and options, check out this guide here).

What are stocks?

Let’s look at the first part of our stock trading vs options trading discussion. A stock or shares is an instrument allowing you fractional equity of a listed company. It’s a method for corporations to raise funding from investors in return for giving up equity in their business.

Most shares are traded through an exchange (but you can trade some through a broker or privately). This is the same premise when looking at option trading vs stock trading. The listing of shares follows a pattern like this:

• It starts with a company that has a proven multi-year profit track record. They use the stock market as a means to generate more capital to raise their bottom line and profile.
• The corporation will need to meet the requirements from their chosen exchange to get listed. During this time, they decide how much of their business they will sell as shares, each of which are priced at a certain value.
• The company will have an initial public offering (IPO), an event where the stocks get listed publicly for the first time.

Investors can decide to buy or sell the stock at this stage or later based on various technical and fundamental elements.

When selling, you make a profit when the stock is doing poorly. Conversely, you can also make money if you’ve bought a stock that ends performing well. 

Aside from the natural price appreciation, some equities pay yearly dividends, which are a portion of a company’s profits. This represents one of the major differences when looking at stock trading vs options trading.

What are options?

Now let’s look at the second of our stock trading vs options trading conversation. An option is a type of financial derivative where you have the right (but not the obligation) to buy or sell a specific market at a certain price and expiry date.

In simple terms, you have the privilege to buy or sell but aren’t obligated to hold what you’ve bought or sold. The only price you pay is a premium if your prediction is wrong.

Options trading is like wagering or betting the value of an asset will be below or above a certain level (the ‘strike price’) within a set time limit.

The latter is the expiry date, which ranges from one minute to a few months depending on the type of option and where it’s traded.

There are many types of options, including exotic types like binary, no/touch, straddle, butterfly and ladder, among others. Yet, the most popular and accessible are call and put options (collectively referred to as vanilla options).

A call is where you bet a market’s value will be above the strike price, while a put is where you bet a market’s value will be low the strike price.

It should be clear by now that you can trade options on a range of financial assets like forex, crypto, metals and, of course, stocks. This is another major difference between options vs stocks. 

Stock trading vs options trading: similarities and differences

There are some comparable aspects when looking at stocks and options:

• Trading venue: Traditionally, we trade shares and options on exchanges. We can also speculate in either market as a derivative via a broker.

• Risk: Any financial asset carries the potential of monetary loss, which can be emotionally or psychologically challenging. Some argue that options are riskier, but it depends on where you trade them. 

The risk is higher if you’re using more leverage, which is only possible from a broker than an exchange.

Let’s look at the differences between stock trading vs options trading. We have summarised them in the table below, before going more in-depth. 

Ownership 

Perhaps the most significant distinction as we explore stock trading vs options trading is ownership. As mentioned before, stocks represent a fractional share or equity of a listed company.

However, ownership depends on whether you are trading the real market or a derivative of it. You can trade shares as derivatives where you don’t own the actual stocks from an exchange. 

On the other hand, options are already derivatives, meaning there is no equity involved in the traded asset.

Leverage 

Stocks have historically always had lower margin compared to other assets like crypto and forex. You’ll be hard-pressed to find a broker providing 50:1 leverage in this department. On the other hand, there is more leeway with options, especially with the exotic types.

The higher leverage means that you need less capital, while more money is necessary when investing in stocks. Also, it allows you the potential to make the most profit (but you can also lose a lot of money quickly).

Time horizon

Another significant contrast when observing stock trading vs options trading is the time horizon. With stocks, you can hold a position for an indefinite period, provided you have enough money. Conversely, options have a time limit.

Downside potential

One brilliant advantage of options over most financial assets is that you always have a known loss amount thanks to the premium. You know that, even if your prediction is wrong, you won’t lose above a certain amount.

Other markets like stocks and forex rely on stop losses, which aren’t technically fixed. It’s common for traders to remove a stop or not use one at all. This means they can lose a lot more than intended.

Options or stocks, which should you choose?

We’ve now come to the end of our stock trading vs options trading head-to-head. You will probably be asking yourself what should one choose between stocks and options.

Both markets have immense profit potential once you’ve mastered them. Stocks have a greater legacy and are regarded as the old-fashioned way of investing. Although options are quite old too, they are more suitable for short-term trading. 

The main contributor is, of course, the leverage, which appeals to day traders and scalpers. So, it’s harder to scalp or day-trade with equities due to the lower leverage.

However, nothing is stopping you from participating in both markets. In fact, this is quite common. Many investors may have stocks as their primary asset, and use options as a secondary option for hedging.

Here, you can take one position in stocks and the opposite direction on a stock option. The point is that the two can co-exist with each other. Alternatively, you can decide to focus on one. Regardless, both securities are equally challenging to master and require years of dedication before you bear fruits.

Introduction

Stock market manipulation and insider trading have been subject to many Hollywood films and TV shows. First, there was the 1987 classic Wall Street starring Michael Douglas. Another lesser-known film that received good reviews was Boiler Room, released in 2000. More recently, there have been notable blockbuster films such as The Wolf Of Wall Street, which depicted how corruption and greed can lead to fraud on a mass scale.

Hollywood can sometimes exaggerate the truth, and the specifics is something they often leave allowances for. The burning question is, what constitutes insider trading? Today we will give you a detailed explanation of the complexities of insider trading.

Depending on the region of the world you’re in, insider trading can carry huge penalties, including lengthy prison sentences. In addition, the definition can assume different forms depending on the country where the activity occurs. Still, today we will cover the basics of trading and an example of insider trading.

What Is Considered Insider Trading?

Many fraudulent traders who have been entangled in complex insider trading scandals all have one thing in common. Well, two, actually. The first thing is that they are all fraudulent operators. However, many proclaim innocence due to the ambiguity of the insider trading definition. 

Often the case of desperate appeals, these rebukes are dismissed quickly by the presiding Judge. Is there some truth to this, though? Do insider trading laws leave some of the law open to interpretation, or are these chances simply trying one last throw of the dice to get themselves off the hook?

Insider trading definition is somebody who encourages or participates in the illegal practice of trading on the stock exchange to their advantage by using confidential information. 

For many sceptics, wealthy stockbrokers have often been considered a fair target as people who don’t operate within the confines of the law and usually have enough money to get out of trouble. Famous comedian George Carlin once said, “It’s a big club, and you ain’t in it!”

Reading between the lines of this statement could lead one to believe that there’s an interconnectivity between giant corporations, Wall Street and other huge investment organisations.

Often the heads of successful organisations will know each other through networking events or by attending University together. Confidential information, so long as it is not used to make a profit in trading, isn’t insider trading.

Who Investigates Insider Trading?

The Securities & Exchange Commission are a federal agency in the United States that has investigated insider trading on the stock market for decades. In the United Kingdom, it is the Financial Conduct Authority (FCA) – each region will often have its own regulatory body that enforces these laws.

The SEC will proactively investigate potential stock market manipulation in the United States. Elon Musk is the most high-profile name the SEC has targeted recently.

SEC insider trading has a clear definition. The whole existence of the SEC stems from the 1929 Wall Street Crash. Then, the United States government created the agency to protect retail investors and beginner traders from market manipulation.

How does the stock market work for beginners looking to avoid the pain of a manipulated stock where they lose money? It involves performing ample due diligence, research and looking at some of the company’s investing in the same asset. Of course, this isn’t a guaranteed method to stop yourself from falling foul of this despicable activity, but prior research can help you.

Examples Of Insider Trading

Ivan Boesky

With many examples to choose from, one of the most significant cases of fraud and insider trading came in 1986 when Ivan Boesky was charged with insider trading and sentenced to multiple years in prison and fined $100 million.

This case is infamous because insider trading laws were rarely punished up until this point. However, given the scale of Boesky’s profit, and his fine , it set a precedent for future cases. Michael Douglas’s main character Gordon Gekko, from Wall Street (1987), who had a penchant for greed, is thought to have been based on Boesky.

Jordan Belfort

Another prominent example of insider trading was the main premise of the Martin Scorsese film The Wolf of Wall Street in 2014. The film highlighted the perverse activity at Jordan Belfort’s Stratton Oakmont firm throughout the 1990s.

Belfort used confidential information to pump up the price of a stock that he majority owned. Then, in a scam known as boiler room fraud, he would have his team of fraudulent stockbrokers sell the stock to unsuspecting retail investors. 

Some lost thousands and are still waiting for their money back decades later despite Belfort profiting handsomely from the film about his life and vast criminal exploits.

Although the textbook definition of illegal insider trading is profiting off confidential information, you can still apply this to Belfort. By pumping up the price of worthless stocks (most of which he owned), the confidential information he had access to was that he was the chief owner of the useless stock and had plans to defraud them all. 

Jeffrey Skilling

The Enron scandal was the most significant individual corporate scandal in the history of the United States. At the time, Enron was one of the top companies in the country, with a turnover of billions of dollars, allegedly. 

Once the fraudulent accounting practices started to unravel, the executives began to jump ship. Clearly, Enron was collapsing due to the total fabrication of its assets. Unfortunately, one of the central men in charge, Jeffrey Skilling was responsible for one final despicable act.

Skilling was almost entirely responsible for the crash. He then sold his stock before the news began to break, compounding the misery.

Not only had he profited from this colossal fraud for years, but once the penny dropped and the fraud was due to become public, he sold his overpriced shares in light of the confidential information. 

Skilling’s fraud was so vast and complex to comprehend, given the size of Enron. Nevertheless, its subsequent collapse was one of the biggest news stories of the early 21st Century, culminating in a 24-year prison sentence in 2006.

These are just a few examples of what is illegal insider trading on a mass scale. 

Is Insider Trading Illegal?

Yes, insider trading has been illegal since 1980. However, some people have argued about where the line is drawn regarding insider trading. For example, big corporate CEOs and top traders often go to the same social events, gatherings or other locations such as golf clubs. 

If information is accidentally divulged or subconsciously hinted at during these types of gatherings, then it can be complicated to prove in a court of law. However, the SEC have a rigid set of rules. 

In America, if you are trading off the back of nonpublic information and profiting off it, then you are on very thin ice. As we discussed in our previous section, some punishments can range from multi-million dollar fines to decades in prison. 

Does Inside Trading Only Happen In Stocks?

This is a fair question considering it has been our key focus today. Insider trading can happen in any market. There are so many examples of stockbroking because it is easier to prove and is a malpractice that has occurred for much longer.

However, if you’re looking to become a successful forex trader, knowing what insider trading can look like in an actual news item could save you from losing money. Although no laws expressly forbid insider trading in the forex market, there are some alleged examples of when it occurred, but it is rare.

During the September 2022 “mini-budget” in the UK, the then Chancellor of the UK, Kwasi Kwarteng, has been facing accusations from dozens of MPs of facilitating a budget enabling hedge funds, billionaire investment bank managers and institutions to short the pound. 

Many other members of Parliament are calling for an investigation into the occurence. As a result, the Great British Pound sunk to all-time low levels against the US Dollar. 

Shorting is a type of trading where forex traders trade the likelihood of the currency depreciating. If the currency drops in value compared to other major currencies, such as the US Dollar, then traders who use this method profit handsomely. 

It is often used with other trading tools by professional traders in markets such as the futures market. Professionals in the industry call leverage trading margin betting as well.

Do Other Markets Experience Insider Trading?

Given the nature of insider trading, the rules often refer to confidential information and using that information to profit. Ultimately, this definition is more prominent for stocks. Given corporations have a select few at the top who have access to the information, it is more prominent.

Forex trading is a difficult market to prove illegal activity in. Still, the UK example in the previous section would be insider trading if proven in court. However, there are no examples of anybody facilitating insider trading in the forex market.

The same applies to other markets, such as commodities. The commodities market is tangible products, which include wheat, oil, gas and water. But it also comprises other markets such as precious metals like steel, gold and silver. 

The newest and most volatile market out there is cryptocurrency. Goldman Sachs labelled Bitcoin as the top-performing global asset in January 2023. However, due to the lack of regulation around digital assets, it can be challenging to prove insider trading. 

Conclusion

There are many scams in the world of finance, and cryptocurrency hosts many of them. However, it would be foolish to suggest there isn’t evidence of a serious financial crime in stock trading, as history has proved on multiple occasions. 

Unfortunately, insider trading will always likely exist. The cutthroat nature of institutional stock trading is unlikely ever to go away. The type of characters it can attract means that the environment sometimes creates people looking to make money via any means necessary. 

Luckily, the SEC in America and the FCA in the United Kingdom regularly investigate this type of activity. Moreover, given that a lot of trading is now automated and everything is logged securely on computers and servers and subject to tight legislation, it is easier to monitor. 

In addition, any unexpected price activity can automatically trigger warning signs and red flags. With so much automated trading in today’s society, it is easier than ever to have warning signals set up when assets inflate or deflate over a specific margin. Hopefully, technology will advance to a stage where so this behaviour

Introduction

Stocks are among the oldest financial markets, starting from the 1500s. We live in a highly economical society, with stocks playing a major role. Each financial instrument serves its purpose in the economy.

Crypto is helping to usher in digital money; forex is necessary for the international exchange of fiat currencies (check out this piece where we compare FX and stocks).

The issuing of stocks helps companies grow their business, and, in return, investors profit from that growth. So, understanding stock trading can help align you with a tried-and-tested investment strategy through familiar brands.

So, let’s explore stock market basics in more detail here.

What are stocks? How stock trading works

A stock (also known as equity or share) simply represents fractional ownership of a listed corporation. We generally trade stocks on stock exchanges and brokers (but it can also be privately). The concept of basic stock trading is simple. 

It always involves an already profitable company (or one that shows excellent potential) looking for external funding. Stock markets are one way of raising this money for the business to expand and make more profit.

The company will first decide how much equity it will give to investors. This stake is what’s distributed to the exchange into shares priced at a certain value during the IPO (initial public offering) phase.

Shareholders expect the price to increase over time if the company performs well, among other factors. Here, they can sell some or all their shares to other investors, resulting in a profit for them. Some companies also pay yearly dividends to their shareholders, derived from actual profits.

This is, in a nutshell, stock market basics. 

The exchanges are the next element to observe when exploring how to understand stocks. This is a marketplace that most companies consult to list their shares. It has a physical location that stockbrokers and shareholders can attend for trading purposes.

But, of course, you can trade online through a platform connected to the exchange. There are approximately 60 major exchanges globally. They are located across various countries like America, China, Japan, Hong Kong, India, the United Kingdom, and Australia, among others.

Here is a list of the top 10 exchanges by trading volume:

1. New York Stock Exchange (USA)
2. NASDAQ (USA)
3. Shanghai Stock Exchange (China)
4. Euronext (Europe)
5. Japan Exchange Group (Japan)
6. Shenzhen Stock Exchange (China)
7. Hong Kong Stock Exchange (China)
8. National Stock Exchange (India)
9. Saudi Stock Exchange (Saudi Arabia)
10. London Stock Exchange (United Kingdom)

Another popular way to trade stocks is through derivatives offered by brokers. This product derives or takes its value from an underlying asset. It’s a way of trading a market without owning the real thing. 

For instance, a gold or silver derivative means you don’t take physical possession of the metal. But you can profit from the price’s up and down swings.

In the case of stocks, trading a share derivative means that you don’t own the actual shares issued by the exchange. Yet, you can make money whether its price rises or falls.

There’s more to explore with stock market basics in the next section.

The basics of trading stocks

How to understand stocks is about analysing what drives their prices. Like most markets, we have two primary types of analysis: technical and fundamental. Some traders use one exclusively or combine the two.

It’s not only the analysis that matters. Your trading style determines how long you will hold your stocks. 

For example, short-term traders, like day traders, close their orders before the trading day ends. On the other hand, swing traders keep their positions open for several days or weeks. And then position traders who have a long-term buy-and-hold approach with monthly and yearly horizons.

Nonetheless, let’s look at technical and fundamental analysis in more detail.

Stock market basics technical analysis

Technical analysis (TA) is about studying patterns and indicators to predict future movements. Traders typically look at elements like the trend, momentum, support/resistance and volume on a candlestick chart.

These contribute to a trader’s decision to buy or sell a certain stock. Charts are the primary graphical representation of present and price action. So, even if you’re not using technical analysis, they are still necessary. 

As with other markets, the main flaw with TA is that it doesn’t provide information on the external forces of price changes. Fundamental analysis is there to fill this gap and is a crucial part of stock market basics.

Stock market basics fundamental analysis

Experts consider TA as representing the present value of a stock. Fundamental analysis looks at factors that suggest the true or fair future price by looking at the underlying company’s financial performance, assets, market share, etc.

Also, economic and geopolitical events form part of FA. This type of analysis in stocks is multi-layered and depends on the investor’s objectives. Some prioritise industry trends as what will determine the success of a company.

For example, if a corporation is in an emerging industry, this could be enough of a reason to invest in it, despite other harmful factors.

Others will want to see a healthy balance sheet and earnings report, using that to decide whether the stock will fall or not. Regardless, while TA is geared for the short term, the impact of FA is felt in the long term.

Most common types of stocks

Now we’ll look at the different kinds of shares to fully understand stock market basics. We generally have six types of stocks (the examples we’ll provide of each relate to American companies).

• Blue-chip: As the term suggests, a blue-chip stock is the crème de la crème of shares. These are large and well-known companies with several years or decades of existence. They are industry leaders and have a strong track record of profitability. 

While there is no formal criteria to determine a blue-chip stock, investors refer to the Dow Jones Industrial Average as the benchmark. Examples of blue chips include Apple, Coca-Cola, Microsoft, Nike, McDonald’s, etc.

• Dividend: A dividend (or income) stock pays dividends to its shareholders. As mentioned earlier, not all companies do this. Dividend stocks come from all industries and include well-known (like Ford) and less-popular companies (like CME Group).

• Defensive: A defensive (or non-cyclical) stock is known to maintain good performance regardless of how well the economy is doing. Businesses of these equities typically sell essential services and products, making them less likely to fail.

Defensive stocks are also known to pay dividends, another factor adding to their reliability. Examples include Procter & Gamble, Philip Morris International, Johnson & Johnson and Coca-Cola.

• Growth: As the name suggests, a growth stock is a stock that analysts anticipate will increase faster than the business or industry average. Companies of growth stocks tend to be new or have developed an innovative product/service that will offer them greater market share.

Examples include Tesla, Netflix, Spotify, Etsy, Meta Platforms, and many others.

• Cyclical: A cyclical stock (the opposite of a defensive stock) is affected by economic cycles. When the economy is at a peak, it does well; when it’s in a recession, it follows suit. Cyclical stocks consist of brands selling non-essential or consumer discretionary products.

These include car producers, hotels, restaurants, airlines, retailers, etc.

• Penny: A penny stock usually trades for less than $5 a share. These are small companies with growth potential. However, experts consider them riskier than established equities, primarily because you don’t always find them on proper exchanges. Also, they don’t have enough of a track record.

Conclusion: pros and cons of stocks

To round off our stock market basics discussion, let’s look at the benefits and drawbacks of investing in shares:

Pros

• Well-established trading/investing strategy with proven returns
• Better regulated compared to other markets
• Some stocks offer passive income in the form of dividends
• You can start with a few hundred of dollars
• Equities are linked to a growing economy

Cons

• Stocks have lower margin compared to instruments like forex, meaning more capital is needed
• There are tons of stocks, making it harder to specialise
• Slower growth compared to markets like crypto
• Needs more time in fundamental analysis research
• Limited opening hours

Ultimately, any financial market has its unique pros and cons. It is no different when learning about stock market basics. As they say, knowledge is power. The investors who remain successful are those who have studied beyond the basics of trading shares.

Still, it helps immensely to start with the simple things before moving on to the advanced stuff. So let this guide be everything you need to know about stocks in the most basic form.