The buying, holding, and selling of stocks is how investors make money in the stock market. If you are interested in learning stock trading, there are three crucial basics you should learn as soon as possible.
Broker Commissions Vary
Brokers have access to electronic markets; individual investors do not. For this reason, most investors have a broker or brokerage firm to handle trades on their behalf. The fee or commission for this service varies depending on the broker and the services being offered. Some brokers (discount brokers) handle the transaction and nothing else. Other brokers (full service or traditional brokers) offer investment advice and other services in addition to taking care of the trade. It is a good idea to compare services and commission fees prior to choosing a broker. Large commissions can cut your profits severely.
You Must Pay Income Tax
When you sell (trade) stocks, you have to pay capital gain tax on your profits. This is important to keep in mind while you are watching your investment and making the decision to sell. If the money you spend in brokerage commissions and taxes eats up all of your profits, trading the stock may not be the best idea. On the other hand, if your gain will be exceptionally large, you may want to consider making a quarterly estimated payment to the IRS to cover the tax.
Long Term Investments are SafestShort term stock trading, also known as day trading, is a lot like gambling. It can be a very risky venture for the amateur investor. This method of stock trading should not be attempted by beginners. It is much safer to look to the long term. This means investing and leaving the money sit until a sizable profit has been made.
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