Stock trading is the process of buying and selling of stocks, which are certificate of ownership of business. People buy and sell stocks not to get ownership of a business but to earn money. In the same way that many people have earned a lot of money in stock trading, many people have also suffered losses in engaging in this gamble. Here are the perks and drawbacks of stock trading.
Benefits of Stock trading
Opportunity to own a company. Stock trading allows an ordinary person to be a part owner of a company. Instead of just being a consumer who buys the products and services that are being sold by a company, you enjoy the earnings of that company as a part time owner.
Fight off inflation. History had shown that the prices of commodity and services will continue to increase. And one way to keep up with this trend is to invest on stocks which in turn show an average yearly return of 10 per cent which can offset the inflation rate.
Convenience of purchasing. People can now engage in stock trading easily through the stock market. You don’t need to go to individual companies to buy stock or find clients to sell your stock. All you need is a broker to represent you in the stock market who will conduct the buying and selling in your behalf.
Make money. The obvious benefit of stock trading is generating income. You can buy stocks and wait for the dividends or earnings from the companies of the stocks that you purchased, or you can engage in buying stocks when cheap and selling them when they become expensive to earn money.
Disadvantages of stock trading
Lose money.In as much as you can earn money in investing in stocks, you can also lose your money in investing on stocks. You can lose money if you buy stocks of a company that went bankrupt or when you sell your stocks at a rate that is cheaper than when you bought them because of a financial or economic crisis.
Stockholders are paid last. As owners of the company, you’ll get paid last when your company underwent bankruptcy. After liquidating the asses of a busted company, creditors are paid first followed by preferred holders and finally the common stockholders like you. Although this can happen, there are more successful companies that continue to thrive than companies that ended.
Investing entails research and constant monitoring. When you engage in stock market trading, you need to learn how the stock market operates, and learn how to evaluate which stocks are potentially profitable or not. You need to learn how to read and analyses financial statements, annual reports, and market trends in order to learn how to invest wisely.
You compete against professionals. There are people who dedicated themselves in the study and research on stock trading. They also have complex trading tools and perform various financial modelling programs in evaluating and determining their decisions. If you are an independent trader, it may be difficult for you to keep up with these professionals and stay in the game for long.