What Are 4 Types Of Trading?

What Are 4 Types Of Trading?

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You’ve decided to embark on a journey into unfamiliar territory — the stock market. Armed with a nice chunk of discretionary income, it’s time to put it to work. Whether you’re trading for retirement, the kid’s education, or that summer house on the lake, use this handy guide to learn about the four different types of trading and start trading for your future today.

Swing Stock Trading

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Understanding swing trading can lead to considerable earnings, even for novice investors. This method offers plenty of pros when compared to other methods of investing. In a nutshell, swing trading is a short-term method for buying and selling securities.

Typically a swing trade position lasts between two and six days, with the aim to discover trends and gains during that timeframe. Once identified, it’s easy to capitalize on these up trends, bringing in significant profits. This position isn’t as extreme as some of the other methods, and when you invest in the large-cap market, you can limit your risk.

Day Trading

You might have heard the term “day trading” around your circle of friends, though you might not understand the difference between day trading and swing stocks. The biggest distinction is the hold time, which is less than a day with this kind of investment.

Day trading closes when the market does, and focuses solely on the trends of that specific day. It requires lightning-fast decisions, near-constant babysitting, and cannot account for changes that frequently occur after the trading day ends. It’s risky and difficult, but if you’re fortunate, day trading can earn you short-term profits.

Penny Stocks

If you’re new to trading, you might be tempted to look into penny stocks. These low-priced, small-cap stocks come with significant risks. Despite their name, penny stocks are rarely sold for a cent and actually cost up to $5.

The realm of penny stocks is a bit like the market’s Wild West. It’s prone to high-risk and violent fluctuations, and a few gunslingers with low-liquidity are out there waiting to swoop up your hard earned cash.

With all the risk involved in trading penny stocks, what’s the allure? The same answer applies — volatility. Today’s penny stock may jump from $1 to $8 in a week, and voila, you luck out and cash in. Some investors can rake in gains over 1,000 percent with the right penny stock.

Long-Term Trading

If you plan to camp out in the market for the long haul, consider long-term trading. This type of stock is often held for months, if not years.

Armed with a fundamental analysis of a company’s growth and profits, you can earn high dividends and bonuses over time. Value investing is a method of long-term trading where you invest in undervalued companies that hold a high intrinsic or true value in the hopes of an enormous payoff down the road.

When you’re ready to trade up to your share of the market’s profits, refer to this handy guide. Pick one or more of these four main types of stock options, and start building your future today.