Your Questions About How To Pick Stocks To Trade

Thomas asks…

Is daytrading stocks a Full-Time Job?

I started day trading stocks since 1995. I started with about $15,000 and grew it to over $200,000 until the dot.com bomb hit in the year 2000. I ended up losing almost all of it. I started to try it again and I started with $20,000 and grew it to over $90,000 only to lose almost all of it again. I have got reduced hours at work since April so I decided to try again with only $5,000 and at this point have made it grow to $60,000. I use margin which is borrowed money and buy the most risky stocks available. I live with my mom and I told her that I feel this is Full-Time work but she feels I am expected to work at a 9-5 job regardless. I never told about how much I gained or lost. Does it sound like my stock picking skills are weak or is it like I feel more like a Full-Time job? If you were me would you continue to pick stocks on my own like I do and try to work also or shouldn’t I pick stocks at all?

John answers:

Daytrading is a full time job according to the IRS.

Sandy asks…

Can anyone tell me the difference between Equity, Option trades and Margin rates?

I am really new to stock and shares.
I would like to get started and would like to know how to go about it.
I would also like to know a reliable place to look for which stocks we can buy and in what quantity.
Useful information about best stock picks
Groups where you can get information
What is the cheapest and best way to trade stocks
I am really new to this and would like any guidance and help.

John answers:

<<>>

The basic idea of equity is ownership. For example, if you have a $200,000 house with a $125,000 balance on your mortgage, you own $75,000 worth of the house and the mortgage holder owns $125,000 worth of the house. You have $75,000 equity in the house.

Shares of stock are sometimes called equities because each share represents ownership of a very small percentage of the company.

For a slightly more comprehensive definition see

http://www.investopedia.com/terms/e/equity.asp

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An options trade occurs when a buyer and a seller agree on a premium for an options contract, and the buyer pays that premium to the seller.

For an explanation of what an options contract is, see the first tutorial at

http://www.cboe.com/LearnCenter/Tutorials.aspx

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The term “margin rate” could be used in different ways in different contexts.

First you need to understand what margin is. Margin is contents of your account that can be used as collateral. If Jane has an account that contains nothing but $50,000 in cash, she has $50,000 margin available. Similarly, if John has an account that contains nothing but 1,000 shares of a stock trading at $50 per share, he also has $50,000 margin available.

If you borrow cash against your margin balance, you will be charged interest on that loan. The interest rate may be called the margin interest rate or simply the margin rate.

There are also margin requirements for different types of short sales. For example, to sell a stock short you need margin available equal to at least 50% of the sale proceeds. That 50% figure is usually called the “margin requirement” but you could also say the margin rate for a short stock sale is 50%.

Margin is also used to indicate the difference between a product’s (or service’s) selling price and the cost of production. So if it costs a company $200 to build something it sells for $210, it has a profit margin of $10. Since $10 is 5% of $200 the margin rate would be 5%.

For a slightly longer discussion on margin see

http://www.investopedia.com/terms/m/margin.asp

—————

<<>>

Learn before you trade. Remember you can participate in the stock market by buying mutual funds and let professionals choose which stocks to buy and sell. You do not have to make those decisions yourself.

If you do decide you want to learn how to pick and trade stocks, you can start with something like the “Fool School” at the Motley Fool site.

Http://www.fool.com/school/basics/basics.htm?source=ifltnvpnv0000001

Warning: If you go to a number of eductaional to learn trading, you will discover that they sometimes disagree with each other. This does not mean one is correct and the other is wrong. It means the two sites are using different techniques to try to make a profit.

There is no standard formula upon which everyone agrees when investing. One technique will work better at some times, but not as well at others.

<<>>

I do not believe any such site exists. If it was that simple no one would lose money in the stock market.

<<>>

Read the section in the Fool School on choosing a broker.

Mary asks…

How to cherry -pick equity stocks?

I’m a commerce student doing my XIIth. During this summer vacation, I want to develop my interest in stock markets, gather a lot of information about it and do trading in my father’s demat A/c.So, could you help me with my question?

John answers:

Dear, I wish the rosy terms like “Cherry-pick” could have been that easy to realise. Instead of trying to concentrate on cherry picks, develop a rational thinking and approach towards equity and stock market. Try winning steadily and gradually.

Betty asks…

How does Online Stock Trading Work?

I was thinking about investing $1,000 in an online Stock Trading site like Scottrade , but I have some questions.

Does a stock broker pick the stock for me, or do I have full control?
When I buy or sell a stock, does the transaction happen immediately?
If I short sell stock, would that happen immediately as well?
And do I have to pay any extra fees?

Thanks!

John answers:

“Does a stock broker pick the stock for me, or do I have full control?”

No… A stock broker doesn’t pick the stock for you unless you hire one to do so for you. So yes for the most part you have full control.

“When I buy or sell a stock, does the transaction happen immediately?”

The online stock trading process is almost completely digitalized. Using ECNs, Electronic Communication Networks, online stock trading is almost all done with computers these days. An investor selects a stock and quantity for purchase using an online stock broker. The sale is then communicated via the ECNs looking for a seller’s stock offer to match. Once located the sale is made, the funds applied and deducted from the buyers online account, and the transaction is done. Ownership confirmation of stocks is maintained with the online stock brokerage firm, and the accounts owned by the investors held there.

In most cases it’s an instant transaction.

“If I short sell stock, would that happen immediately as well?”

This works the same as mentioned above. Basically it’s instant depending on high volume trading.

“And do I have to pay any extra fees?”

This depends on the online broker you choose. Be sure that you understand the terms and conditions of the brokerage firm that you choose

Hope I was of some service to you

Congratulations on Your New Endeavor and Good Luck!

Mandy asks…

Stock trading for fast money?

I am biginer in stock market but have fairy good knowledge from reading over the internet from different sites. I have fund of 7000 – 10000 for investment in stocks. I generally go to check on Yahoo, MSN, AGedwards, Motely fools site to know about company and picking stock for investment. My idea is to wait for particular stock to rise 2 – 3 dollar per share price and sale it and pick another stock. In a year my aim is to get 1000 – 2000 dollars as gain of my investment.

My questions are –

a) Am I doing the right thing or is there any better idea ?

b) Generally I fill up 1040EZ form for IRS, but with this kind of stock trading and transaction of say 10 – 12 per year saling stock and making small gain at short interval. What kind of form I need to fill up for IRS ?

c) For stock trading and educating self for filing IRS return – where should I get information on IRS publication ? As how to file return and what to consider for paying gain tax.

d) I use H & R block software

John answers:

A)If you are proficient go for it. I tried it years ago was 87% accurate on my trades and broke even. All it takes is one bad trade. I much prefer holding a stock a while.

B) You file a Form 1040 and a schedule D. The big problem with trading stocks is maintaining meticulous records.

C) get Pub 17 it covers all tax issues. In general: Securities held less than a year are taxed at you nominal tax rate. Securities held more than a year get a lower rate. I also would familiarize your understanding of the wash rule sales

Good Luck.

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