An equity (stock) represents the ownership in some entity. In the case of the stock market, equities represent ownership in a publicly traded company. When you buy a share of stock, you are purchasing a piece of that company. Traditionally, the average person bought equities and maintained ownership of the company for an indefinite period of time. Investing, as it is generally called, is still a common strategy when purchasing equities. However, with the advent of the Internet, direct access trading and the subsequent ability to easily and swiftly trade equities, other strategies for equity trading have evolved.
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Buying Long |
| Most investors "buy long," purchasing equities to open a position. Obviously such investors are bullish on the stock, expecting the price to increase. Stocks can be held indefinitely, with owners sometimes receiving dividends on their shares. Day-traders, on the other hand, might buy and sell stocks many times each day. |
Short Sales |
| Another type of equity trading is called "selling short," whereby an investor borrows stock from their broker-dealer in order to sell it, opening a short position. Such an investor is bearish on the stock and expects its price to fall. They hope to "buy to cover" the shares at a price below where they sold, closing the position and pocketing the difference. |
Index Equities |
| Traditional equities represent ownership in the issuing company only. While ownership offers many potential benefits, the investor also takes on many risks. A company may post bad earnings or receive bad press and see its stock price fall drastically compared to the market, or liquidity in a particular company’s stock may dry up, making sales difficult. For these and other reasons, index equities have become quite popular with many traders. Index equities offer ownership in an underlying group of securities, usually representative of an index like the S&P 500 or Nasdaq 100. These securities allow investors to trade on the movement of an entire index, while typically providing great liquidity due to their high trading volumes. |
Day Trading |
| Day traders buy and sell stocks throughout the day in the
hope that the price of the stock will fluctuate in value during
the day, allowing them to earn quick profits. A day trader
will hold a stock anywhere from a few seconds to a few hours,
but will always sell all of those stocks before the close
of each day. The day trader will therefore not own any positions
at the close of any day, thereby eliminating overnight risk.
The objective of day trading is to quickly get in and out
of any particular stock for a profit anywhere from a few cents
to several points per share on an intraday basis.
Day trading can be further subdivided into a number
of styles, including:
Scalpers: This style of trading involves the rapid and
repeated buying and selling of a large volume of stocks within seconds or minutes. The objective
is to earn a small per share profit on each transaction while minimizing
the risk.
Momentum Traders: This style of day trading involves identifying and trading stocks that are in a moving pattern during the day, hoping to catch a breakout.
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Swing Trading |
| Swing traders hold their stock positions longer than day traders, with trade durations ranging from 2 days to more than a week. The main objective of a swing trader is to benefit from intra-week price changes in that stock and profit from price movements over several days, since price movements may be much larger over the course of a few days as opposed to one day. The longer exposure in that position tends to present more risk, and extensive use of technical analyses is used to help determine when to enter and exit the position. |
Position Trading |
| Position trading is a trading approach characterized by the trader holding meaningful positions for an extended period of time. Position traders may hold a position for one month or even up to 12 months. Position traders may qualify their purchases through fundamental analysis or expectations of success and profitability within a given company, sector or even the market as a whole. Position traders do have an established time frame for these long held positions. It is the existence of this time frame that separates position trading from investors. |
Investing |
| An Investor purchases a stake in a company and holds that position for an indefinite period of time. Typically, investors seek fundamentally sound and profitable companies, where they will invest significant amounts of capital with the idea of appreciation and potential income over the course of several years. |
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