Getting started in stock trading can seem like risky business when you’re putting your hard-earned money on the line. Even more concerning is making sure that you understand your rights and how to trade legitimately. We are going to familiarize you with a few forms of stock trading and how to keep your investments legally sound.
Market orders guarantee execution on your order to buy or sell, but the price will be determined whenever the order execution completes. These orders are executed by automated systems and are usually safest in a stable market. The price of the stock can change in seconds, which can make the outcome of a market order unpredictable.
When you’re looking for a broker to handle your money you will want to make sure that they are beyond reproach. Ask for a broker’s license and registration so that you can do some research on them. Look them up with your state securities regulator or the Investment Advisor Public Disclosure website and see if they have had any disciplinary actions against them or their firm.
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Short-term trading, or day trading, can be considered the inverse of market order. The risk is much higher and is generally not recommended for less-experienced traders. In this case, a high familiarity with the trends in the market is imperative to determine the best time to enter and exit the market. The time that a stock is held during short-term trading could be a few days to a few weeks at most.
There are certain rules you should be aware of to keep you in the clear. The Wash Sale Rule is relevant when claiming a loss of capital to reduce your tax burden. If a stock is sold at a loss, it cannot be repurchased for 30 days to still be claimed as a capital loss on taxes. This can apply to any loss of capital in investment but especially with the margin for error on short-term trading.
Optioning allows an investor to buy or sell a stock at a determined rate based on whether they think it will rise or fall. You can also set an expiration date by which the stock will reach the targeted rate. This is helpful because the time value is used in prediction models. Betting that a stock will fall is called a “put” and betting a stock will rise is a “call”. It’s important to keep track of the spread in bid vs ask price when trading options.
There are a few concerns with trading stock options. One concern can be trading stock for a company you work for, whether they are options or otherwise. This can lead to insinuations of insider trading. However, this is overruled if the options are given as part of an employee benefits package.
We’ve talked about three different types of stock trading and some useful information to keep you clear of any legal trouble. With this information, you should have an idea of where you’d like to start trading. Go forward into the market, without fear.