Individuals and organizations are always looking for a way to increase revenues. An enticing concept to do this is to invest in trading securities. While all securities investments pose a risk of losing the capital investment, trading securities increases the the chance of profits and losses. There are many factors involved when considering trading securities. To understand this, let's look at each of the components individually.
Securities are equities or debentures of publicly traded companies that are bought and sold through brokerage firms. They are regulated by the U.S. Securities and Exchange Commission and offer no guarantee of return on investment. Securities, even bonds, fluctuate in value and pose a risk to the principal investment. Securities investments are offered for corporations ranging from large capitalization companies to extremely high risk penny stock ventures.
Trading is the purchase or sale of a specific security. It can be either an equity or debenture and is done via a brokerage firm. Individuals can have trades done either through a registered representative (a licensed Financial Industry Regulatory Authority broker) or make trades without a broker through an online brokerage trading firm. Trading can be done either in a cash account or through a margin account. Cash accounts require all transactions to be paid for in full by the settlement date three days after the trade execution. Margin accounts allow the investor to borrow money for the purchase of securities in hopes that they will not go down in price and a margin call for the difference is demanded by the brokerage firm.
Trading Securities Defined
Trading securities is the act of buying and selling securities with the intention of making a quick profit. Brokerage firms and investment advisers recommend buying securities for the anticipated long-term appreciation of the company. Trading securities involve the same stocks and bonds available to all investors on public exchanges. The difference is trading securities are timed by investors to buy low and sell high in short time frames. While all securities can be traded in this fashion, some securities have a natural ebb and flow that can be traded more regularly. For example, retail store chains expect higher fourth-quarter earnings as a result of holiday shopping that may lead investors to time early fourth quarter buying to be sold in the early first quarter.
The profits that can be made in the short term by trading securities is enormous. Investors who can time the market have the ability to reap the highs while re-buying at lows. Unlike long-term investors who ride out the high and lows of investments mutual fund managers make a living by moving capital in and out of securities by timing news, technology and sales reports. Those who are good at this are well worth the fees they charge.
Many long-term financial advisers liken trading securities for the average investor to gambling. The investor may be lucky once or twice, but more than likely does not have the resources or time to follow the international market and how it affects domestic securities for well-timed trades. Ultimately, the possibility of high returns is slapped with the reality of extremely fast losses. Additionally, the constant buying and selling, even for successful investors, may have a good portion of profits eaten up by capital gains taxes.