Trading stocks is a great investment for your future. When done properly, you can build up a nice cushion to help you live comfortably and securely. Knowing when to buy and when to sell is crucial, especially when you begin making larger investments. Mastering this timing will make a difference between you making a profit and you losing your hard-earned money. Focusing on one stock is a risk, but part of investing involves learning your limits with risk-taking. The question that is probably on your mind is how often you should buy and sell a single stock and how this will affect your investment portfolio.
Generally speaking, you can immediately buy and then sell a stock. You can actually do this up to four times within five business days. Even though you can do this, it is likely not going to be a smart decision. Part of investing means having to wait for your profit. This is similar to putting money into a savings account. If you put money in and then immediately remove it, you will not earn interest on your money. The longer you keep a stock, the more chances you have for it to grow.
Unlike simple interest, stocks operate differently. They can change by the hour, even by the minute. For this reason, it is best to study the pattern of the particular stock you are looking to buy and sell. You never want to buy a stock when it is up. Wait for it to go down, and then you can make your purchase. If you do want to sell, make sure you sell it when it is on the up. This will mean you make money instead of simply breaking even or losing money.
If you repeatedly buy and sell the same stock without considering these fluctuations, you are not going to make a worthwhile profit. Instead, you are only going to waste your time, energy, and finances. It takes patience to invest, and this is something you will practice a lot when you are buying and selling. Try not to jump the gun when it comes to the quick sale, even if the stock is on the rise. You never know when it might tank again or when it is expected to spike. This is why careful observation is necessary. Study the patterns and the data from days and months prior.
What to Know About Selling Quickly and Buying Again
The term for buying a stock and selling it on the same day is called day trading. Many people are day traders, but they still have to make careful and calculated decisions. If you plan on trading like this frequently, you are actually required to have at least $25,000 in cash and securities in your profile. If you are going through a broker, you also need to make sure you are authorized to buy stocks on margin. This means you are borrowing money from your broker to buy securities. There is a lot more that goes into day trading than most people realize.
If you do not meet these requirements and choose to buy and sell on your own, you can make three day trades per rolling five-trading-day-period. These are factors you must consider before you hit the sell button. Many people think they can get rich quick by operating this quickly, but there are limitations and risks involved. If you are new to day trading, it is recommended to do your research before taking on this strategy for your investments.
Another fact worth mentioning is that you will not receive the return instantly. There are settlement periods to keep in mind. The settlement period takes up to three business days, which means you are not actually going to see this money in your account instantly. Day trading is not a scheme to get wealthy overnight. You are still exercising your patience, even when you buy and sell immediately. However, if you are trading on margin, you can immediately access the funds. You will still owe interest on these borrowed funds, though.
Aside from these general restrictions, you also need to keep in mind the age of your portfolio. If you are using a broker who can see that you are new to day trading, the brokerage may implement restrictions on your account until you are able to establish yourself. Experience is everything when it comes to investing, both for your own financial gain and to earn the trust of your broker/brokerage. There might also be a target you must meet when it comes to keeping certain amounts of cash in your account. This means you cannot just blow all your cash on stocks to turn around and sell them. There must still be a cushion present.
Out of all the trading habits, day trading falls on the riskier side. There is so much risk involved because the market is ever-changing. What you believe is a great investment might turn into a significant loss in the blink of an eye. The last thing you want is to leave with a negative account because investing is supposed to help you gain. No matter how much you observe the stock you have your eye on, it truly is impossible to guarantee its behavior. Anything can cause a spike or a dip, and you need to be observant and vigilant to choose the right time to buy and sell.
Think about the other traders, as well. There are people who have been doing this for years on end and have perfected the art of day trading. In a way, this type of trading can be very competitive. It is common for newer traders to lose money before they gather enough experience to start making a real profit. If you do want to try your hand at day trading, make sure this is not the only thing you are doing. Long-term investments will carry you through the days when you just cannot seem to get the timing right. This will ensure you are not simply burning a hole in your pocket.
One final thought to consider is how day trading will impact your taxes. Any gains you do manage to secure are going to be taxed as regular income. Even if you are not actually making a lot more money, this still needs to be reported when you file your taxes. If you end up holding onto your investments for the long-term, these will be taxed at a lower rate. For example, keeping a stock for a year will allow you to be taxed at a long term capital gains rate rather than the normal income tax rate.
With what you have learned, you can go forth while making smart investment decisions. Even though you technically can buy and sell the same stock repeatedly, you understand the risks and limitations involved. A diverse portfolio is going to make the most sense and potentially lead to the most gain. After some time, you will learn what works best for you and your financial capabilities. It is through this real experience that you become better at trading and investments as a whole.