Common forms of investment are stock investing and trading. Learning to invest or trade in the financial markets can be made into a good hobby. You can make yourself a very good investor after knowing how to put in your money in any investment or in the stock market. There are many ways to learn the specifics of the trade market. A way is to get a course on basic accountancy principles, annual reports, and stock market history. It would be very beneficial for you to be knowledgeable on the game’s scoring system. If attending regular classes is not convenient for you, then you can subscribe or purchase software on investment services and management. However, these services and programs can be expensive. If only there is a cheaper access to access management and investment solutions, beginners would be more confident to tread the field of stock investment.
Filed under Stock Market by on Sep 20th, 2011. Comment. 
Major factors that can have a huge economic impact, short-term and long-term, are the implementation of government policies, along with the actions of the Federal Reserve. Naturally, there are many elements, main and minor, that will impact an economy. It might be a natural disaster, a war, trade policies, unemployment, availability of natural resources, and so on.
Filed under About Your Money, Stock Market, The Economy by on Aug 1st, 2011. Comment.
Day trading is described as the on the web trading of monetary instruments throughout the day. The profits related with this kind of trading are tiny. Monetary instruments are traded as their costs rise and fall by way of little margins hence the earnings are little.
You'll find those that attempt to sell the notion which you can make massive profits from a few single trades but this is often a misconception.
Filed under Stock Market by on Feb 20th, 2011. Comment.
It is reliable advice that the Internet has completely changed how most of us stock trading and invest.
Even though you use a professional, full service stock broker much like your father used to, you can not only talk with your broker online, nevertheless , you can do all your stock research on the web and even trade options online if you're confident enough to do so. One interesting type of investing that has been very popular over the last few years is daytrading. While stock investing can utilize any type of stock, it mostly concentrates of small cap stocks, or stock who have only a small value. Let us take a look at penny stock lists and why daytrading can be something you might want to consider.
Filed under Stock Market by on Feb 7th, 2011. Comment.
You can’t deny the fact that you need money in order to survive in this world. Without money, you can’t buy food, shelter, clothing, and the other necessities of life. If you want to live comfortably, you must have a stable source of income. Aside from your job, you can also earn additional income through stocks trading.
If you want to be successful in stocks trading, you must be involved in day trading because that’s one way of earning huge profits. For those people who don’t like long term investments, day trading might work for you. By investing in day trading, you can expect the profits to be reflected in your account the soonest possible time. This is also the reason why day trading is very much popular these days.
Like other trades, day trading also involves risks. If it is possible to earn huge profits in one day, the chances of losing huge investments are enormous as well. As a trader, you’re not expected to remain active at all times. Did you know that with a very good negotiation strategy, you can earn huge money in seconds, minutes, and hours? That is indeed possible but it will take time. You should not rush things when you’re studying the market. Take your time because after careful and thorough market analysis, you can make a good deal. It’s up to you whether you will only make one transaction per day or several transactions.
Studying market trends is also very important. Some value of stocks tends to rise continuously and if this is the case, a trader may buy the stock with the hope of selling it at a much higher price later on.
Before making any transaction, there are things to consider like:
1.Stocks can be very unpredictable. If you want to buy a stock and hope to sell it at a higher price, you need to monitor or check the computer often. Frequent observation is needed so that you can make an informed decision. Your internet connection should be reliable so that you won’t lose in any of your transactions.
2.Beware of day trading because even if you earn huge profits today, there is still a possibility of losing even a larger amount in the days to come. If you’ve committed mistakes in the past, you need to learn from them. Risking your investments is not a good idea so try to be very careful with all your transactions, online or offline.
3.You must be patient. Again, you must always take your time and don’t be hasty with your buying or selling decisions. If you’re unsure of a certain transaction, get out immediately.
Indeed, day stocks promises a lot of profit to those who are willing to take risks but this doesn’t mean that they can simply make uneducated decisions. Investing in day stocks requires careful thought and analysis of the market trends, along with other factors.
Try to consider the things mentioned earlier especially of you’re into day trading. Beginners need all the help they can get because day trading is not very easy.
Gather as much information as you can about day trading. You can find a lot of information about stocks trading online. Start your research now so that you will know how to conduct day trading and understand the processes involved.
Filed under Stock Market by on Jan 29th, 2011.
We have to first know 'what is
really a market' in order to understand 'what is currency markets.' The phrase 'market' brings up an image of a place in which the buyers and sellers assemble to trade the goods in exchange for money. We now have the samples of fish market, vegetable market or cloth market and so forth.
Filed under Stock Market by on Jan 25th, 2011. Comment.
Choosing excellent stocks is only the first step to become a consistently profitable trader. Those of you that track the performances of inventory picks I post on http://www.cisiova.com/analysis.asp realize that it is extremely hard to determine if a stock options is excellent without a great exiting strategy. And for most traders, exit technique may be the hardest part. Numerous individuals say that to trade profitably you have to create the proper mentality. Unfortunately, such successful mentality can only be produced through encounter. However, there is a short cut to have via the studying curve without throwing thousands of dollars inside the procedure. This brief cut is actively playing POKER.
Yes you heard me right. Apparently, actively playing poker has plenty of similarities with investing in shares. Very first of all, they both deal with cash, uncertainties, and a keen judgment of possible risk and reward. In this post I will explain the similarities and differences between inventory buying and selling and poker. But before proceeding, make certain you know the rules of Texas Holdem and fluent with the terminologies.
Consider of stock options picking as looking for great hands to play. In Texas Holdem, it is possible to look at the two hole cards and decide whether or not you can play the hand or not. Similarly, you are able to analyze the stock options before entering a location. Fortunately for you traders, no 1 will raise pre-flop, so you just pay the commission. Bear in mind to exit the position you also need to pay the commission, which implies that the expense of entering a position is two times the commission. Great poker players only play great hands, so you should do thorough researches before entering a placement. A single excellent point about exchanging is that you don't have to wait for excellent shares like poker players wait for good hands, it is possible to locate excellent shares on inventory picking web sites or utilizing screeners to discover them yourself.
Once you call the blinds in poker, you get to see the flops and two much more cards. Believe of these cards as the performance of one's stock following you enter the placement. In poker, the flop can make a good hand, a medium hand, or a poor hand (by helping your opponents) In buying and selling, you are able to observe the possible of the inventory too, and also you must objectively judge the downside and upside possible with the stock options. In poker, you will find times that you simply possess a great hand, and your opponent have a far better hand, and you also know you are beat. These are the occasions where your mentality matters the most. An experienced poker player will fold his hand regardless with the amount of money he has put into the pot. As a trader, at instances that you simply believe the upside potential fails to actualize,
you ought to sell the stock options regardless of how a lot you might have lost. On the other hand, when a good poker player knows he has the successful hand, despite the possibility of dropping at the river, he would bet aggressively, without having fearing the small dropping possibility. In exchanging, this translates to if the stock goes up and manifests higher upside potential, you must not concern that you will lose your recent winnings. Therefore the profitable mentality is always to ride when the stock options is going up, and market when the stock options is losing its heat. This discipline is very easily said than done. So several times I have heard folks lost all their money because they hold on to losing positions (due to hope) and promote profitable positions as well early (because of dread)
By actively playing poker, you would get the chance to master your emotions, understanding not to hope when you're beat, and not to concern when you might be favorable to win. You want to lose tiny and win large, not the opposite.
Now go practice. This mentality only develops with experience.
Read more on Understand Stock Options Exchanging From Playing Poker…
Filed under Stock Market by on Jan 20th, 2011. Comment.
According to some experts, the intense risk takers are those that invest in stocks option trading. They are also called option players. These players usually purchase short-life assets in the hope that it will have an enormous increase in value. If the option players are able to purchase the right asset, they can expect a return of 500%, which is really huge money.
Choosing the right short-life asset is not an easy task. Besides, you will also need to wait for about two months before you can determine if you win or loose. You will lose everything if the stocks option did not increase in value or if its
value remained flat. This is the main reason why many traders claim that option players are risk takers. It would have been much better if they invested in stocks because even if the value remained flat, they will not lose the money; the only thing that these traders will lose is the opportunity of investing in a much better stock.
Options are considered declining assets. The depreciation rate is faster than that of cars; in fact, the stock options will be worthless in a couple of months.
High risk comes with high rewards but this is not true all the time. Option players do believe in that cliché. They claim that in order to gain extraordinary profits, a trader must be willing to take enormous risk, regardless of the amount of money involved.
Intelligent option traders are very careful with their decisions. Prudent investors are scared to invest in stock options but with thorough examination and analysis, they may be able to choose the right bet. If buying a stock option is considered very risky, selling it is even riskier. Experts even say that when you sell stock options, there is the possibility of losing more money than what you invested.
If you want to be a good options player, you must disregard the fact that it is a risky game. Think of it this way – buying or selling stock options simultaneously is not risky. Properly executed strategies can create lesser risks as compared to investing in a mutual fund or stock. This entails a lot of work on the part of the trader.
If you want to become good at options trading, you must learn how it works. You must be familiar with the investment process and you must be active. You can’t simply ignore your investment and so you must check or monitor all transactions, and the market as a whole, from time to time. A lot of traders hate to exert a lot of time and effort in stocks option trading but they don’t realize that it’s nothing compared to the possible profits they can gain.
So, is stocks option trading risky? Of course it is but only to those who are very lazy to spend more time and effort in options trading. By giving yourself enough time to learn the basics of options trading and the investment process involved, you will surely be able to make a worthy investment. If you don’t take the risk now, you will not be able to earn the profits you deserve. Ask yourself this question – are you prepared to spend more hours in the computer analyzing market trends and other trade factors? If your answer is a yes and if you have adequate investment, proceed with stocks option trading.
Filed under Stock Market by on Jan 8th, 2011.
According to the Securities and Exchange Commission of the United States, investors should not buy or sell the so-called ‘hot stocks’. These hot stocks tend to rise in value quickly but when there are unexpected delays, the value may also fall quickly. If you’re not that smart in investing in stocks trading, you will surely lose lots of money.
Accounts can now be accessed through the internet but that is not a guarantee that all your trades will be instantaneous. If you want to limit the losses, consider these things:
1.You should know a lot of info about the stocks you’re purchasing
2.You must be able to understand the risks involved in stocks trading
3.You should be familiar with the stocks trading process
If you want to be successful in stocks trading, you should know some of the problems encountered by investors. For instance, there are times when the stock’s price soar or drop suddenly. If you’re caught in the trading process, you can either lose a lot of money or gain huge profit. S ince the market is a fast-paced environment, delays often occur which
in turn slows down executions and even trade confirmations. If you plan to buy or sell stocks, you should place a limit order rather than market orders. Do not attempt to buy or sell stocks at a very high or very low price. Take note of the limit order so that you won’t lose huge money.
How does the limit order work? Suppose you placed a stock order for $10. With the limit order, you will not end up paying a higher price like $35. You can also apply the limit order when you’re selling stocks. When the limit order or target limit is hit, sudden losses can be eliminated. However, there is also a risk involved in placing limit orders. You can’t hold some of the stocks at longer periods even if you want to wait until the price of the stock rises. You see, when the target is reached, the stocks are automatically sold.
Online trading does not give immediate results. There are also dangers involved in online trading. Immediate stocks trading can be affected by problems with servers, modems, and delayed hardware between the broker and dealer. You must know some effective trading alternatives just in case a problem interrupts the transaction.
There are times when the order is delayed and so they end up making double orders or double selling. Because of this, there are times when the investor is able to buy stocks that they don’t like or they sell stocks that are not even theirs. If you’re not very sure if the transaction was completed, whether you’re buying or selling, you must immediately check with the broker.
You must have a broker who can effectively handle stocks transactions quickly. The fast-paced market doesn’t have room for slow investors. There is no time limit when it comes to trading. You’re free to make investments at any time and on any kind of stock. It is your responsibility to choose a good broker who can help you with your investments. Assets are very important to investors. You must ensure that you’re dealing with the best broker in the market. That way, you will gain more profits with stocks trading.
Filed under Stock Market by on Dec 18th, 2010.
Automatic forex trading can be done in a variety of ways and for so many reasons that deciding where to start can be a big task. Do you need to start an account with a brokerage specializing in this type of trading , or do you want an account with a brokerage that lets you trade futures, stocks, options, and more ? As if this decision isn't sufficiently overwhelming on its own , then you have to go on to figure out whether to use FX trading as a speculative or hedging tool, long or short term, etcetera. Before you start there are definitely many things to consider .
Read more on Automatic Forex Trading And The Benefits Your Portfolio Can Enjoy…
Filed under Stock Market by on Nov 3rd, 2010. Comment.
A lot of people would certainly liken trading and investing along with poker. Nonetheless, actually, the 2 couldn't a little more various. The truth is, it's not basically acquiring along with shares at the same time. Creating a good trading tactic makes perfect to earning the idea throughout stocks and shares.
A regular current market simulation, can be an adventure request of which duplicates facets of real-life investment promotes, via buying and selling techniques as well as info, because of the numerous stock market several hours with the different stock exchanges. Continue reading and also find out about how one can find out and exercise dealing having an online investment online game simulator.
2 kinds of on the web share online game software can be found online that you should practice your trading knowledge and methods. Obviously, absolutely no genuine funds are included; perform financial resources are used, to help you train the idea with no financial threat. The particular 2 types of simulators are: Economic as well as dream stock game simulators.
If you need to practice trading via a " sci fi "-ish stock portfolio determined by actual entries, cases and stock market time, then a economic currency markets simulator may be the best option for you. Because such a simulator downloads along with functions genuine and also actual numbers along with info, nearly all stock trading online sites that provide these types of free share game titles utilize a late data supply, that directs the data nicely bash finish regarding stocks and shares several hours. This particular prevents any misuse on the simulator and the system by unscrupulous dealers who wish an edge just before the beginning of a stock exchange several hours involving the very next day.
Nearly all on the web simulation systems make sure stocks and shares data along with files may not be employed to accomplish real investing prior to, during and also right after stock exchange hours utilizing their details. Safe, trusted as well as pleasurable, a financial currency markets online simulator is a superb method to train actual stock trading cases and also achieve expertise and also a working tactic before you shift approximately the genuine article.
A different type of simulation could be the wonderland simulator. This sort lets you exercise trading by means of completely hypothetical still fun adjustments. Whilst it retains numerous important popular features of the stock market like quality selections and choices, trading tickers, standard marketplace time, other dealers, among others. Yet unlike the actual financial simulation program, dream simulators feature mythical shares in which, whilst addressing actual goods, would never be really traded in a genuine currency markets buying and selling placing.
Traded components of fantasy stock exchange simulators might consist of questions about just how long books can last in picked top seller listings, the particular box-office achievement of certain movies, tricks regarding infamous celebrities, search positions and figures of activities clubs along with activities, and more. The significance of an illusion market simulation was in it's using principles and how these types of may work granted an actual placing.
Read more on Tips For Trading Online And Stock Market Several Hours…
Filed under Stock Market by on Oct 29th, 2010. Comment.
Stocks can really be a fantastic place to make some extra money. But not everybody who goes into the stock market actually makes any money. In fact a good majority of traders will never succeed at pulling out any money from the market. So, what is the best way to approach it?
Filed under Stock Market by on Sep 11th, 2010. Comment.
This past week has been pretty wild on Wall Street. Thursday saw the Dow drop 1,000 points only to sharply recover. I don't believe these events are totally unpredictable when you understand the market manipulation being foisted upon us.
Filed under About Your Money, Stock Market, The Economy by on May 11th, 2010. Comment.
What is Fantasy Stock Trading?
Fantasy stock trading is a powerful mechanism to learn trading without risking actual money. Users can visit online fantasy stock trading sites, create accounts, and experiment with trading without placing actual money at risk. The first step a new trader is required to do is apply for an account and login. This constitutes their profile and will facilitate keeping track of their account as well as participating in online forums. One of the benefits of fantasy stock trading is being able to participate in online forums and communicate with other traders about trading concepts. The online portals that provide these capabilities vary in type but the two foremost fantasy stock trading online businesses I have discovered are UMOO and Wall Street Survivor. Links to my complete reviews of each website can be seen below:
Filed under Stock Market by on Mar 31st, 2010. Comment.
You may not know it but the stock market history i s
quite extensive though the stock market has had several names. Some of the very first brokers originated in France as they were attempting to regulate the agricultural debt that occurred during the 12th century. However there was no central place or building for trading. The first formal trading house is thought to have originated in Bruges sometime during the 13th century.
Filed under Stock Market by on Mar 22nd, 2010. Comment.
Both short term trading and long term trading can be effective trading strategies, however, long term trading has several significant advantages. These include the effect of compounding, the opportunity to earn from dividends, reduction of the impact of price fluctuations, the ability to make corrections in a more timely manner, less time spent monitoring stocks.
1. Compounding
Time can be investor’s best friend because it gives compounding time to work its magic. Compounding is the mathematical process where interest on your money in turn earns interest and is added to your principal.
2. Dividends
Holding a stock to take advantage of payouts from dividends is another way to increase the value of an investment. Some companies offer the ability to reinvest dividends with additional share purchases thereby increasing the overall value of your investment. Additionally, dividends are more a reflection of a company's overall business strategy and success than volatile price fluctuations based on market emotions.
3. Reduction Of The Impact Of Price Fluctuations
In the long term investment the persons is less affected by short term volatility. The market tends to address all factors that keep changing in the short term. So a person involved in long term investment or trading will not be affected as much by short term instability due to factors such as liquidity, fancy of a particular sector or stock which may make the price of a stock over or undervalued. In the long term, good stocks which may have been affected due to some other factors (in the short term) will give better than average returns.
Long-term investors, particularly those who invest in a diversified portfolio, can ride out down markets without dramatically affecting his or her ability to reach their goals.
4. Making Corrections
It is highly likely that you could achieve a constant return over a long period. The reality is that there will be times when your investments earn less and other times when you make a lot of money in short term.
There may also be times when you lose money in short term but as you are in quality stocks and have long perspective of investment you will earn good returns over a period of time.
There are always times when some stocks do not perform and it is the wise choice to pull out of an investment. With a long term perspective based on quality stocks, it is easier to make decisions to change in a more timely manner without the urgency that accompanies short term and day trading strategies chasing volatile changes.
Investors that begin early and stay in the market have a much better chance of riding out the bad times and capitalizing on the periods when the market is rising by taking a longer term view using long term trading strategies.
Read more on Benefits of Long Term Trading vs Short Term Trading…
Filed under Stock Market by on Mar 20th, 2010. 1 Comment.
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Some financial experts say that engaging into a more lucrative but challenging world like investments are not specially made for the faint hearted.
With the economy seemingly riding on a roller-coaster ride, investing with the right stock seems to be next to impossible. However, with the advent of information technology, people from all over the world go crazy over stock market investments. It is because the convenience of information technology had found its place in the world of investments and computing.
Filed under Stock Market by on Mar 20th, 2010. Comment.
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The question in the title might be a little unfair. After all, if share prices are inherently unpredictable (and in one sense, they are – more on that later), there's no answer.
Nevertheless, over a period of decades the share market has had better returns than any other investment – 8-12% depending on various factors and it's one of the most widely studied markets on Earth. With that kind of historical data and brain power to lean on, one should be able to make a few valid observations. Well, here are some.
You judge their validity.
In the long run, there's no doubt share prices are heavily influenced by earnings. When companies make money, consistently over long periods, investor confidence grows and bid the price of shares up. What influences earnings and confidence?
Everything from interest rates to debt load, taxes, lawsuits, management, technological and other social changes, and the general economy affect earnings – both short and long term.
Almost all companies borrow money and even when they don't their competitors, suppliers and customers do. That affects how much money they have to invest in research and new products or improving existing ones, relative to other companies in the similar lines of business.
Sometimes even stellar managers can be threatened by social or technological changes, unless they evolve the company to adapt. In that case, a company which once sold light bulbs – and made good profits doing so – can become an almost entirely different company in time. General Electric – the only original Dow stock that is still part of the DJIA (Dow Jones Industrial Average) – is an excellent example.
Over shorter time frames, influences become even more numerous and harder to quantify. Everything from the latest analyst recommendation and rumor or actual news event to fraud, the herd mentality and a blizzard of technical factors plays a part.
Google's share price quadrupled in a two year time frame and is projected to grow yet another 50% over the next year. Microsoft – once the most reliable growth stock in the world, even ridiculously so as admitted by its senior executives – has been in the doldrums for years now. Earnings alone can not explain these and other, similar, cases.
Share prices today are in large part due to expectations of what the price will be tomorrow next month or next year. That expectation is affected by technical analysis (which may or not be well founded) and sheer guesses about what other investors are thinking or will think. Along with these there are occasional out and out cases of fraud, lawsuits from nowhere and other unexpected circumstances.
Political changes play a part, and sometimes they too are unexpected by most investors. No one can say when or whether a tax bill will pass that reduces or increases corporate rates. The election of a new Prime Minister or President can have a large, short term affect or longer, sometimes, depending on the individual.
And, then there's the inherent unpredictability mentioned earlier. Short-term, and to some degree long-term, prices are a statistical phenomenon. As with any statistical effect you can't make a prediction – except with some degree of probability. And, since investors – some of whom own large blocks – can change their minds on a whim, you can only make educated guesses about what or when those choices will be.
So, what's the average investor to do? That depends on the kind of investor you want to be.
For those with the talent and time to do intense moment-by-moment research, it is possible to do well in short-term trading. Though almost all day traders lose money. For those, even big risk takers, who are more inclined to fundamental factors and willing to research long-term trends – take comfort in the fact that 8-12% return over decades is as good a prediction as you need.
Filed under Stock Market by on Dec 27th, 2009. Comment.
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There are two basic ways to trade the share market – shooting in the barrel or using strategies to determine which stocks to buy, when to sell, and how to protect your investment dollars. Needless to say, strategies outperform barrel shooting by a large margin. There are, however, hundreds of trading strategies to choose from. Of all of these there are a couple of tried and trued methods that have worked well for investors over many years.
The beginning investor is advised to investigate some of these basic strategies and see for himself how they perform. New strategies can be explored once the basic ones are well-understood.
Hedging
Hedging is a way of protecting an investment by reducing the risks involved in holding a particular share. The risk that the price of the stock will drop can be offset by buying a put option that allows you to sell at the stock at a particular price within a certain time frame. If the price of the stock falls, the value of the put option will increase.
Buying put options against individual stocks is the most expensive hedging strategy. If you have a broad portfolio a better option may be to buy a put option on the share market itself. This protects you against general market declines. Another way to hedge against market declines is to sell financial futures like the S&P 500 futures.
Dogs of the Dow
This is a strategy that became popular during the 1990s. The idea is to buy the best-value stocks in the Dow Industrial Average by choosing the 10 shares that have the lowest P/E ratios and the highest dividend yields. The companies on the Dow Index are mature companies that offer reliable investment performance. The idea is that the lowest 10 on the Dow have the most potential for growth over the coming year. A new twist on the Dogs of the Dow is the Pigs of the Dow. This strategy selects the worst 5 Dow stocks by looking at the percentage of price decline in the previous year. As with the Dogs, the idea is that the Pigs stand to rebound more than the others.
Buying on Margin
Buying on margin means to buy stocks with borrowed money – usually from your broker. Margin gives you more return than if you were to pay the full cost outright because you receive more share for a lower initial investment. Margin buying can also be risky because if the stock loses value your losses will be correspondingly greater. When buying on margin the investor should have stop-loss orders in place to limit losses in the case of market reversal. The amount of margin should be limited to about 10% of the value of your total account.
Dollar Cost and Value Averaging
Dollar cost averaging involves investing a fixed dollar amount on a regular basis. An example would be buying shares of a mutual fund on a monthly basis. If the fund drops in price the investor will receive more shares for his money. Conversely, when the price is higher, the fixed amount will buy fewer shares. An alternative to this is value averaging. The investor decides on a regular value he wishes to invest. For example, he may wish to invest $100 a month in a mutual fund. When the price of the fund is high he puts a higher dollar amount in the fund and when the price is low he spends less money. This averages out his investment to the original $100 per month. Value averaging almost always outperforms dollar cost averaging as a percentage return on the money invested. When used as part of a broader trading strategy it can help secure the growth of your investment fund.
Filed under Stock Market by on Dec 4th, 2009. Comment.
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One of the alluring myths that surrounds the stock market is the prospect that a certain stock may split, giving stock holders twice as many shares as before. What is poorly understood by the outsider, though, is that although the investor has more share after a split, the value of each share is reduced. For example, if a corporation decides to split its share 2-for-1, it issues one new share for each outstanding one. At the same time, the value of each share is cut in half. So the stock holders now hold twice as many shares but the total value is the same as before the split. A share split is like receiving 2 five-dollar bills for a single ten-dollar bill. Same value – twice as much paper.
Why would a company do this?
A lot of it has to do with investor psychology. The price-per-share of a share may be so high that the average investor feels it is out of his reach. A stock split reduces the price so that it may be more affordable to smaller investors. In reality, the small investor could have bought a smaller number of pre-split shares for the same price, but the appeal of buying a $20 stock as opposed to a $60 may be strong for some investors.
Shares can be split by a number of ratios but the most common are 2-for-1, 3-for-2, and 3-for-1. stocks can also be reverse-split – the company reduces the number of outstanding shares so that each stock holder has fewer shares than before. Reverse share splits are less common, but can be used for several reasons: the price per share may be so low that it appears as a poor investment; the company may be attempting to stave off possible de-listment on the share exchange; to push out minority stockholders; or as a way to go private.
Advantages
Lower prices per share can result in greater liquidity – shares are easier to sell at lower prices and there is less of a bid/ask spread. This is especially true for shares that are priced in the hundreds of dollars – small investors view them as out of their budget and the high bid/ask spreads (the difference between buying and selling prices) can put off bigger investors.
Other advantages have to do with investor psychology. A split is usually seen as a bullish indicator – share prices are increasing and the company is doing well financially. There is usually a short-term rally around a stock which splits, but the market tends to normalize after a short period.
On the downside, a split may cause investors to expect more about how the company performs. If these expect ations
are not met investor confidence may be shaken and the result could be a drop in share prices.
The bottom line is a share split does nothing to affect the worth or performance of a company. It may be nice to own more shares, but in the end your 2 five-dollar bills are still worth the same as your ten-dollar bill.
Filed under Stock Market by on Nov 28th, 2009. Comment.
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