Equities trading is another way to make money online from home, ForexSQ experts conducted Equity trading definition for beginners and what is the equities trading difference versus stock trading difference.
Equity Trading for Dummies
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In the financial investment arena, the term “equity trading” is often synonymous with “stock trading”, but there are a few differences between the two types of investments. Equity trading involves the purchase (or sale) of company stock shares via one of the major stock market exchanges. Stock trading also involves the purchase (or sale) of shares of stock in publicly traded companies that are traded on one of the major stock exchanges.
The main difference between the two lies in the brokerage firms and investment options they offer. Brokers who offer equity trading specialize in extensive market research and offer their valuable trading expertise. They also have direct access to the trading floor and provide clients with unique trading systems that often include algorithmic trading for more experienced investors.
Equities trading usually involves hedge funds which are comprised of groups of experienced investors who form legal limited partnerships and use high risk methods of investing client funds that include leveraged (borrowed) money for purchasing investment assets. Hedge funds are overseen by a Hedge Fund Manager who has great flexibility in choosing assets in which to invest and hedge funds are designed to trade more actively (than mutual funds) within a large investment bank like JPMorgan, Bank of America, Morgan Stanley, etc. Mutual Fund Managers typically use long term “buy and hold” approaches for investing assets, whereas Hedge Fund Managers trade much more actively in an attempt to increase capital in the short term, even when markets are down.
Hedge Fund Managers can choose to invest client funds in stock trading, CFD trading, equity trading, equity option trading, spread betting, bond trading, foreign currencies or any other investment asset that fits with their investment plan and trading strategy.
Equity Trading Basics
Multiple day trading brokerages have emerged recently who seek to grow profits by leveraging large amounts of capital funds to take advantage of slight price fluctuations in highly liquid indices or stocks. High liquidity refers to actual cash on hand or in a checking or savings account and stocks, bonds, certificates of deposit and mutual funds are all considered highly liquid for investment purposes.
Day trading brokerages provide access to the firm’s capital funds for those investors who have proven track records of successful investments. Some firms allow traders to use any trading strategy they choose as long it remains successful and profitable, while other firms design their own formulas for trading success and require traders to utilize that formula instead of their own.
Equity trading brokerage firms use a Fund Manager or Portfolio Manager for professional expertise and trading oversight in their investments in pension funds, mutual funds and hedge funds.
Equity day trading firms use their own expert technical analyses and their ability to efficiently track money flow to take advantage of short term trading opportunities that occur in various international marketplaces and this gives them insight that typical traders don’t possess.
Like other investment vehicles, equity trading is completely electronic and automation made it possible for brokers to easily trade remotely using equity trading platforms on personal computers or handheld electronic mobile devices. Gone are the days of calling your broker to request a trade and having that request flow down to the trading floor where traders are yelling at each other in a frenzied environment to fill investment orders.
Today’s traders can buy or sell assets with the click of their computer mouse and can access brokerage trading platforms with real time charts and other valuable trading tools from anywhere and at anytime.
Equity Trading Platforms
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Different brokers use different trading platform software for researching assets and placing and following trades of a variety of financial investments in multiple international marketplaces. Equity is the difference between a company’s assets minus its liabilities and equity trading refers to buying and selling shares of company stock through one of the major stock exchanges in the world like the New York Stock Exchange or the London Stock Exchange.
Although different brokers use different trading platforms, they all offer basically the same trading tools and access to research and active trading markets for multiple investment assets. There is no trading platform specifically designed for equity trading and investors who are interested in these types of investments can choose their favorite broker for providing tools and a platform from which to conduct equity trading.
Equity Trading Strategies
Equity trading strategies are typical of those used by investors everyday to grow earnings by investing in shares of company stock. These investments require ongoing research about assets and marketplaces and are typically traded using the most common equity trading strategies that include active day trading, position trading, swing trading and scalping.
As the name implies, day trading is a synonym for active trading which is a method of buying and selling financial assets within the same day. Most day trading is conducted by professional investors and traders who are known as “market makers” and the internet has opened this investment opportunity to many investors, including those who are new to the world of financial investments.
Position trading is a “buy and hold” trading strategy that does not really involve active trading. Instead position traders uses long term charts combined with other research options that allow investors to look for trends that forecast the direction of financial markets or assets and act on those trends when applicable to their trading strategies.
Swing trading occurs at the end of a trend when price volatility determines whether investors will buy or sell an investment security. These trades are usually held for longer than one day but for a shorter period of time than typical long term investments.
Scalping involves exploiting price gaps caused by spreads and order flows and are typically short term holdings and quick investment strategies. Profits realized by scalpers tend to be small compared to other investment strategies which causes them to hold their positions for a short time and look for more liquid assets and markets that aren’t prone to sudden price fluctuations and allow them to increase the frequency of trades and thereby increase profits.
Equity Trading Brokers
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There are online brokers all over the world and each is licensed by a regulatory agency that oversees financial assets and the markets in which they are traded in their particular countries. Equity trading brokers are licensed professionals who make a living buying and selling equities in the form of shares of company stock and use trading platforms designed to access research materials about stock in various companies, their particular niches in the economic sector and to place and track trading of multiple assets in a variety of marketplaces.
Trading stocks is the most common form of financial investments and millions of trades are conducted globally on a daily basis by professional brokers and amateur investors alike. Stock trading can be easily conducted by investment newbies who are willing to conduct the necessary ongoing research about the companies in which they invest by purchasing shares of stock.
Trading stock requires a methodical system of evaluating market fluctuations and traders should be detail oriented in order to research assets and continually follow market activity. Stock trading is all about having the odds on your side and realizing profits immediately is nothing more than a pipe dream.
Investors who trade stocks should be prepared for long term investments that require analyses of various financial reports, quarterly and annual statements, as well as news events and other economic data that can greatly impact the performance of various companies whose stocks are traded publicly. Another important factor to consider is the quality and expertise of the management team of broker executives.
Multiple things can impact a company’s performance and stock traders should be prepared to conduct ongoing extensive research about the assets they are trading and follow global, national and local news events that can greatly affect the bottom lines of companies whose stock they own as well as investment profits.
A perfect example of this is a bank that is falsely rumored to be performing poorly and, even though the rumors are not true, the bank’s customers panic and withdraw their money from the bank, which leads to a lack of operating capital for the bank and the inability to secure financing because of false rumors. The inability to conduct day to day operations because of lack of funding results in the bank’s stock prices being driven down and the downturn in business eventually forces the company to file bankruptcy.
Technical analysis is essential for trading stocks and involves detailed examinations of stocks and their prices. Stock price fluctuations are not based on what investors think will happen but on what they are willing to pay for a share of stock. If a lot of people want to buy the stock its price will increase and if a lot of people are selling a stock, it’s price will drop.
These trends are extremely important to follow in order to achieve stock trading success and realize investment profits and investors should trade in the direction of whatever trend persists.
Equities vs Stocks
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As previously mentioned, trading equities involves a lot more risk since leveraged funds are used to actively trade in markets in the hope of realizing short term profits even in a bad market or economy. An equity trading firm offers the expertise of its professional traders for managing equity trading, whereas stock trading is generally conducted by investors who have limited investment funds or lack an understanding of other financial assets and the markets in which they are traded. Following a company’s performance and business success is key to successful stock trading and it can be done by the investor, not by some Manager appointed by the brokerage.
Even those who are new to investing can easily trade stock shares by building a portfolio of several stocks from the same market or economic sector which will help build knowledge of the industry. Then they can follow those specific stocks and keep abreast of any and all news and events related to them or their area of expertise.
A properly licensed brokerage firm is required to actually conduct trades and will allow investors to open trading accounts which provide access to that brokerage’s platform for trading financial assets in international marketplaces. Most brokerage firms also offer free Demo Accounts for newbies to practice trading using play money and virtual assets and marketplaces. There are hundreds of brokerage firms from which to choose, all of which offer essentially the same products and services through some kind of trading platform, tools and features of which vary from platform to platform.
New investors should beware of leveraged investments, which means assets are purchased with borrowed money. Ideally a novice trader should not borrow money for investments and should risk no more than 1% of their total cash holdings, which means that for every $10,000 invested, traders should stop trading losses at $100 per trade. Losses are easily managed by setting “stop loss” orders that protect investments from losing more than whatever specific dollar amount the trader chooses.
Likewise when purchasing investment assets, newbies shouldn’t invest more than 10% of their investment funds on any single investment, which also means that for every $10,000 of available investment funds, a novice trader shouldn’t invest more than $100 on any single investment transaction.
Equity Trading vs Commodity Trading
Equity trading involves buying and selling shares of stock in publicly traded companies and commodity trading involves buying and selling raw materials on international marketplaces. Both stocks and commodities can be invested in by purchasing shares of stock or actual raw commodity materials but investors can also choose to invest in these types of assets by trading equity indices or commodity indices that group related assets together and track their trading performance as a whole rather than just one company’s stock or one particular commodity.
Equity Trading vs Binary Options Trading
Equity trading involves buying and selling shares of publicly traded companies which requires ongoing research about that particular company and its niche in the economy. Binary options are all or nothing trading propositions that involve time limits for closing the options, at which time investors either make a certain amount of profit or lose their entire investment. Binary options may not be applicable for new investors who should stick to trading shares of stock while they research binary option trading and gain a full understanding of all the risks involved and the potential to lose a lot of money.
Equity trading is a component of the general stock trading investment arena but is designed for aggressive traders or professional money managers who have established solid trading strategies that are extremely intricate and complex and inappropriate for most casual investors.
Equity investing often uses leveraged investments that involve more risk than stock trading or require large amounts of money or profit sharing that can quickly consume large portions of investment profits.
Equity trading is extremely risky and can also be expensive, but rewards are realized regularly by investors who find quality money managers with proven trading success. The ForexSQ team has also compiled articles about how to make money online by Indices trading.