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Trading & Investing FAQs

 

InTheMoneyStocks.com’s FAQ page is the perfect source for learning the basics of stock trading. Learn the difference between day trading, swing trading, common stocks, preferred stocks, and much much more! Also, learn what the proprietary PPT Methodology is and how to change your financial future. Our FAQ page was built to answer common questions asked by our beginner stock trading clients. Learn stock trading basics by clicking on a common question below.

Common stock is a way for individuals to own a portion of a publicly traded company. It is referred to as “common” to differentiate it from preferred stock. This is significant in case of a bankruptcy, as common stock is paid out last, after preferred stock holders, bondholders and creditors. Common stockholders have voting rights unlike preferred stockholders. There is no set schedule for dividend payment to common stockholders. Common stock can move up and down sharply over time and returns vary greatly. Generally, common stock carries much more risk than preferred stock but returns can be greater if market conditions and the companies performance excel.

Investing and swing trading common stock is something most do, but few do well. InTheMoneyStocks is your guide to mastering the art of the perfect investment and swing trade. Learn from the pros as they give their Research Center subscribers daily videos, research reports, investment and swing trading alerts and more. Try the seven day free trial today and build your wealth.

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Penny stocks are sub $1.00 stocks that are extremely high risk. They are usually stocks with no earnings and quarter after quarter they lose money. These companies trade around $1.00 for the obvious reasons, poor fundamentals and a lack of clarity on their future. Bankruptcy is always possible as they continue to lose money. While extremely high risk, penny stocks do offer the potential for huge gains. Many investors will buy these plays on hopes and dreams of hitting the next big thing. More astute investors shy away from them as they are aware that only a few will survive while the others will continue to trade lower. There are a few Hidden Gems out there!

Preferred stock is the term for a hybrid investment vehicle. This is part stock and part debt instrument. Preferred stock can also be called preferred shares. This type of investment is ranked higher than common stock but lower than bonds.

Owners of preferred stock are not allowed to vote like common stock holders but will usually be paid a dividend. They also carry first rights to liquidation proceedings and bankruptcy. Often, preferred stock will have a convertibility feature, allowing the owner to convert into common shares. To find out out preferred shares, read the “Certificate of Designation” to company puts out.

Preferred stocks are similar to bonds as they are rated by a major credit rating agency.
Preferred stocks are generally acceptable to a wider range of investor and are thought to be a safer vehicle than common stocks.

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Understanding Preferred Stocks

Preferred stock is the term for a hybrid investment vehicle. This is part stock and part debt instrument. Preferred stock can also be called preferred shares. This type of investment is ranked higher than common stock but lower than bonds.

Owners of preferred stock are not allowed to vote like common stock holders but will usually be paid a dividend. They also carry first rights to liquidation proceedings and bankruptcy. Often, preferred stock will have a convertibility feature, allowing the owner to convert into common shares. To find out out preferred shares, read the “Certificate of Designation” to company puts out.

Preferred stocks are similar to bonds as they are rated by a major credit rating agency.
Preferred stocks are generally acceptable to a wider range of investor and are thought to be a safer vehicle than common stocks.

Understanding Common Stocks

Common stock is a way for individuals to own a portion of a publicly traded company. It is referred to as “common” to differentiate it from preferred stock. This is significant in case of a bankruptcy, as common stock is paid out last, after preferred stock holders, bondholders and creditors. Common stockholders have voting rights unlike preferred stockholders. There is no set schedule for dividend payment to common stockholders. Common stock can move up and down sharply over time and returns vary greatly. Generally, common stock carries much more risk than preferred stock but returns can be greater if market conditions and the companies performance excel.

Dividend paying stocks are usually older, stable companies that have a strong track record of earnings. Once long term earnings has been established, a company will often declare a dividend, giving some profits back to its investors. A dividend is paid to its shareholders in quarterly installment. Investors like these stocks because they are known to be generally safer. Often times older investors, looking at retirement will focus on dividend paying stocks for the reasons mentioned. Younger investors will often times take higher risks with companies without a track record of long term earnings and dividends.

Cyclical stocks are ones that rises and falls with the business cycle in a predictable manner- majority of this is due to the buying patterns of people and industries based on the overall state of the economy. For example, hotel chains and retail stores are two prime industries that are considered “cyclical stocks”. When the economy is up, people are more likely to travel and shop, and conversely, when the economy is not doing as well, these luxuries tend to be the first to go.

For investors, it is important to understand how a cyclical stock works in relation to the economy in both a recession and economic boom. Investors can make the largest gains from cyclical stocks by buying them at the bottom of a business cycle during a recession, just before an economic turnaround begins. However, investors can also have huge losses by buying these types of stocks right before an economic downturn occurs.

A growing group of investors are turning to swing trading to maximize profit and take control of their financial future. Over the last decade, the average investor has made no money in the market and many have lost much of their retirement and savings, between the bursting of the tech bubble and the real estate bubble. After years of investing and having small returns or negative returns, investors are saying enough!

Swing trading is the technique of buying and selling stocks, currencies or commodities, holding the position for days or weeks then getting rid of them for a profit. A good swing trader never falls in love with a stock, instead using it as a vehicle to profit from. A swing trader looks to maximize gains through playing the wild swings in anything they can trade.

Example: Swing trading is the technique of buying stocks at support and selling into resistance, then moving on to the next swing trade. Flextronics International Ltd. (NASDAQ:FLEX) is a perfect example in the chart below, as it bottoms out at $5.00 per share, then spikes to double top resistance at $8.50 over the course of a few months. A swing trader buys at $5.00 and sells at $8.50, never looking back, always moving on to the next swing trade.

Swing trading is the largest growing type of investment strategy in the world. Investors, sick of holding for years and making little to no return are now looking for a hands on approach. To begin swing trading, simply have any size of investment account setup with an online broker. They key is, you want to set your buys and sells yourself, managing your account. Search various stock charts, looking for a chart that is ready to rip higher or collapse lower in the next few days or weeks. A swing trader looks to make a smaller percentage on an investment, such at 10%, but do it multiple times a week or month. The gains can be upwards of 100% a year if done correctly.

If you do not know how to find charts, join an swing trading service like the Research Center at InTheMoneyStocks.com. They will give you swing trades, market analysis and educate you in the ways of finding appropriate swing trades.

When you find the master play that looks ready to move, set a limit order to buy or short at the appropriate level of entry. Before entering the position, select an exit price for profit and an exit price as a stop loss. Each swing trade should be selected with more reward than risk. After you buy or short your swing trade, monitor it once a day to see how it is acting. After it hits your exit price and profit is made, begin looking for your next swing trade. This can be done hundreds of times a year with far less risk and more profit than investing long term.

Example: As Apple Inc. (Nasdaq:AAPL) sold sharply, it came into solid double bottom support at $326.50. A swing trader recognizes the support level and buys. After one week, Apple Inc. had bounced into a resistance point which tells the swing trader to exit at $354.00. The swing trader quickly takes 8.50% in one week and moves on to the next swing trade. Notice how Apple falls lower after the resistance, proving the swing trader maximized profit.

Swing trading, day trading and investing are different in two major ways. First, the length of time a position is held varies greatly. An investor closes their eyes, buys a stock, commodity or currency and hopes for the best in the long term. Investors will often hold for years if not longer. A swing trader holds for days or weeks and a day trader holds for seconds or minutes. The second main difference is finding the level to buy or short. An investor usually chases the hot sector or hype, buying the highs and selling the lows in panic. A swing trader will look at the chart and find an appropriate level to go long or short. The level is usually technically based and will result in quick profits in weeks if not days as the stock bounces off resistance or support. A day trader does the same thing as a swing trader but on a micro time frame, usually holding for seconds or minutes. Swing trading is the gateway to financial independence for those that work a full time job. It is the fastest growing style of trading as investors, sick of losing, look to take hold of their portfolios.

The first chart is an example of an Investor’s Chart, followed by an example of a Swing Trading Chart. The final chart below shows the difference between swing trading and day trading.

A good swing trader will make 50% – 100% on their portfolio a year. Imagine, buying and selling the market, stocks, currencies or commodities on every major move up and down. The possible percentage gains are huge. A swing trader does not have to watch the markets every day. Instead, find a level where a stock, commodity or currency looks attractive, buy it and set a limit sell order at your target. This can be done on the short side as well. Then, just rinse and repeat hundreds of times a year.

Example: The chart below is of Cisco Systems, Inc. (NASDAQ:CSCO). The average investor who was long on Cisco from the start of this chart in April 2010 and held it for one year is down 38%. Even if you held this position on the short side, you are only up 38%. However, what if you were a swing trader and moved in and out of this stock seven times over the course of the year. How much did you make? A staggering 144.5%.

Day trading is a strategy employed by traders who attempt to make a living by going long and short any market or stock for very short periods. As a day trade implies, the trader will get rid of the position the very same day they go long or short. Day trades usually last seconds or minutes. A great day trader will go long or short a stock, market, commodity or currency for seconds, making hundreds if not thousands in profit. Anyone can be a day trader but there is high risk involved. A great day trader can make thousands a day from the comfort of his or her home. If you day trade your own capital, you are your own boss and can make your own schedule. Day traders must be fast with technology and understand the markets. Usually, it will take years for a day trader to master the markets and become profitable. To speed up that process, it is best to learn from the pros. Join a stock trading chat room and absorb all the experience of seasoned veteran traders. With the help of the pros, some traders can turn profitable within a year and start living the dream.

Regulations in the United States say you need $25,000 to day trade. However, there are various prop firms out there which will let you trade their capital if you put your money at risk. For example, some people who do not have $25,000 will go to a prop firm and put $10,000 in an account. The prop firm will let you trade $50,000. However, any losses incurred will come solely out of your $10,000. Generally, this is not a smart thing for a new trader as it takes time and losses to learn to day trade. The best thing to do is accumulate wealth and then inch into day trading. Never trade with capital you cannot afford to lose and always understand the risks involved in day trading. Becoming a pro day trader is doable, but it takes time and study. The best advice is to learn from the pros. Find traders that have been doing it for years and profiting, then follow them. Learn everything they tell you and mold it into your financial success. Day trading takes time, patience and discipline. If you have these, start on the road to financial freedom today.

Before your set out on your quest to become a day trader, make sure you know all the rules, regulations and pitfalls. First, never start day trading with capital you cannot afford to lose. Most day traders never achieve their goals of being a seasoned pro because of two reasons. First, they do not master the discipline and second, they are under capitalized. Just like becoming a doctor or lawyer, schooling is needed to master the art of day trading. If you want to make millions a year, you must pay for that. Doctors and lawyers go to school for years and pay hundreds of thousands to one day make big money, traders are no different. You have to be ready to pay the market. Being under capitalized is the biggest pitfall a new trader will run into. If you are using $30,000 to day trade with, but also pay your rent or mortgage and all your bills from that money, the likelihood of success is minimal. Be ready to study the markets.

Regulations in the United States say do be a day trader, your account must have $25,000. A smart trader will always keep slightly more than that in his or her account because the second you fall below that level, your broker will not allow you to day trade any longer. When first starting, a day trader will take losses as they learn and master the markets. Be ready for it. Find a great day trading chat room to join where you can learn from the pros.

When you begin to day trade, the biggest key is to lose small. All newbie day traders will take losses. When you start day trading, start with 100 shares. In the beginning it does not matter how much money you are making. The key is to learn first. Like a baby, first crawl, then walk, finally run. Once you are winning on your trades with a 75% success rate on 100 shares, up it to 200 shares. After trading with 200 shares for a few weeks and getting to the point of making money on 75% of your trades, up it to 300. The point in the beginning is to lose small. Most traders will bat 50% at best in the beginning. In addition, their discipline is their biggest downfall. They cannot cut a loss. While they may make $100 on each the first four trades, the fifth trade they will lose $500. Ultimately, to succeed in day trading, in this scenario, a day trader can only afford to lose $100 on a losing trade. A losing trade should only cancel out one winner. Most new traders allow a losing trade to cancel out many winners. That math will never work and those traders will never achieve pro status. Discipline on cutting a loss is of the utmost importance.

The key is to take it slow, never trade with capital you cannot afford to lose and find pros to learn from. By doing these things, you can have a great shot at living the dream, making millions as a day trader., then follow them. Learn everything they tell you and mold it into your financial success. Day trading takes time, patience and discipline. If you have these, start on the road to financial freedom today.

Investing in the stock market is important for people that wish to build a healthy financial future. The main reason for investing in stocks is to make money. There are many ways you can invest but the stock market usually offers the highest returns. Some people keep money in the bank making little to no interest, while safe, when inflation is factored in, these individuals are actually losing money. Assume you make 1% a year in the bank, if that. Then factor in 3% inflation a year. The safe investor is actually losing 2% per year. Investing in the stock market can make returns in excess of 10% a year, though it does carry risk. Anyone looking to invest in the stock market needs to understand that risk.

As the economic picture continues to remain bleak, investing wisely in the stock market is the only way to ensure a successful, unstressed future. Without investing, no couple or individual will be able to retire and live comfortably. While investing carries risk, the key to minimizing that risk is to find a service that can help you avoid investing pitfalls. Learning from the pros is the best way to excel and profit. Make sure to avoid the hype in the media, instead focus on the true pros that invest, swing trade and day trading for a living.

Technical Analysis is the approach to the stock market that doesn’t take into account the “value” of a company/commodity, but rather focuses on the analysis of price movements within the stock market. Essentially, this is the study of supply and demand that focuses on spotting trends within the stock market in an attempt to predict the future prices of stocks.

Most stock technical analysis traders utilize a “top-down” approach to the stock market that typically involves the following steps:

1.Broad market analysis (looking at, NASDAQ, S&P 500, Dow Industrials and NYSE trends)

2. Sector Analysis that helps at identifying the strongest and weakest groups/sectors within the market as a whole.

3. Finally, individual stock analysis helps at identifying the strongest and weakest individual stocks within the select groups. Understanding technical analysis can arm you with the tools you need to become a better stock trader.

In the United States, you must be 18 years of age to open a brokerage account. Once opened, you can buy and sell stocks, commodities or currencies. For those under the age of 18, a parent or guardian can open a custodial account. While it is great to start investing at any age, it is extremely important the prospective investor is aware of the proper ways to invest and trade. Understanding true strategy will enable the investor to succeed, making money. Most people begin investing with little knowledge of what they are doing. They end up losing money and learning how to invest and trade by trial and error. This becomes very expensive. It is far wiser to find a great service to help you learn. Join the pros and profit with them.

The stock market can be very beneficial for those looking to build a financially secure retirement. Generally, when investing in a 401k, IRA or pension plan, the younger you are the more risk you take. As you get closer to retirement, risk level should be lowered. This is done because when you are young, you can afford more risk should a bad investment be taken. In addition, done right, the odds favor big returns by taking more risk. When an investor is just a few years from retirement, one bad investment in a high risk play can dramatically effect your ability to recover prior to retirement. Thus risk must be lowered. The stock market is one of the only ways you can truly build a significant amount of wealth. It must be part of any retirement strategy. When managing your retirement accounts, whether a 401k, IRA or pension plan, you must learn the market and never get caught up with the Wall Street hype in the media. Make sure to stand next to the pros and learn their methods. Join a service that tells the truth about the markets, revealing the secrets to profitable investing. This will help you be on the right side of the market, whether it is going up or down. Join the pros and profit.

Sign-up for a free seven day trial and see why investing in the stock market could be right for you.

Which is a better investment- individual stocks or mutual funds?- this is a common question asked to financial advisors every day. First, let’s start off by explaining the difference between the two. Individual stocks are essentially buying a “piece” of an individual company whereas mutual funds are shares of many different companies and can also include bonds and securities as well. Essentially, buying a mutual fund is like buying a lot of little shares in each stock in the fund (a portfolio of stocks).

Typically speaking, mutual funds are considered “less risky” than buying individual stocks because they are more diversified across industries and companies. Assuming one or two stocks in the mutual funds fail, your mutual fund as a whole can still remain profitable by the other stock investments that may be performing very well. Conversely, stock investing has more risk, since you are relying on the performance of an individual company.

So, which one is better for investing? That answer relies on the individual who is investing and the risk level that they are comfortable with.

The agriculture stock sector is made up of a diverse group of individual stocks. These stocks are primarily involved in fertilizers, feed products, food products, seeds, genetically modified seeds, and chemical products. The agriculture sector has been one of the leading and growing sectors in the stock market for the past 20 years. Below is a list of the most active and frequently traded agriculture stocks in the world:

• Potash Corp. of Saskatchewan, Inc. (NYSE:POT)

• Monsanto Co. (NYSE:MON)

• Agrium Inc. (NYSE:AGU)

• Mosaic Company (NYSE:MOS)

• CF Industries Holdings Inc. (NYSE:CF)

• Intrepid Potash, Inc. (NYSE:IPI)

• Syngenta AG (NYSE:SYT)

• Archer Daniels Midland Company (NYSE:ADM)

• Market Vectors Agribusiness ETF (NYSE:MOO)

There are a few important characteristics to know when trading many of the leading agriculture stocks. These stocks often have a tendency to trade much like commodity stocks, therefore, the agriculture stocks are usually effected by the strength in the U.S. Dollar. If and when the U.S. Dollar declines these leading agriculture stocks will often trade higher. In the past 10 years, the U.S. Dollar Index has declined by nearly 40.0 percent and the trend in the agriculture stocks has been higher since that time. The opposite effect will often occur when the U.S. Dollar is strong, the agriculture stocks will generally come under selling pressure.

Most insurance stocks have been some of the biggest winning stocks on Wall Street throughout history. These stocks will generally collect premiums for years and have to only payout claims in rare instances. Some of the times that insurance companies will face a potential loss will come at the hands of a natural disaster.

In 2004, many of the leading insurance companies faced major hardship and a decline in stock prices after a massive earthquake, and tsunami, took place in the Indian ocean. In 2011, Japan experienced a massive earthquake and tsunami, this occurrence once again caused a short term decline in many of the major insurance companies.

Even when a major insurance company faces a major hardship from a natural disaster or a poor financial decision, the insurance company will often survive. In 2008, American International Group Inc.(NYSE:AIG) was bailed out by the United States government after the company failed to make good on it’s insurance obligations. Rarely, will governments allow multi-billion dollar institutions to fail. The U.S. government cited national and global systemic risk as the reason for the bailout of the insurance giant.

Insurance companies have many different segments of business. The most common is the property and casualty segment. This ranges from workers compensation, automobile, property, livestock, marine, liability, and umbrella coverages. Other segments include various health insurance options as well as life insurance, and disability coverage for individuals and groups and more.

• American International Group (NYSE:AIG)

• AFLAC Inc. (NYSE:AFL)

• Progressive Corp. (NYSE:PGR)

• The Allstate Corporation (NYSE:ALL)

• Hartford Financial Services Group Inc. (HIG)

• AXA (ADR) (AXAHY.PK)

• Prudential Financial Inc. (NYSE:PRU)

• MetLife, Inc.(NYSE:MET)

• ING Groep N.V. (ADR) (NYSE:ING)

• China Life Insurance Company Ltd. (ADR) (NYSE:LFC)

• Sun Life Financial Inc. (NYSE:SLF)

Energy stocks encompass a wide variety of companies. The old staples like Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX) are most commonly discussed. These are oil stocks and two major components of the Dow Jones Industrial Average. The term energy stocks refers to companies that produce energy. This can be natural gas, coal, electric, solar or any other type of renewable or non renewable energy.

Some energy stocks are:

BP plc (ADR) (NYSE:BP) – Oil

ConocoPhillips (NYSE:COP)-Oil

Chesapeake Energy Corporation (NYSE:CHK) – Natural Gas

Devon Energy Corporation (NYSE:DVN) – Natural Gas

James River Coal Company (NASDAQ:JRCC) – Coal

Alpha Natural Resources, Inc. (NYSE:ANR) – Coal

First Solar, Inc. (NASDAQ:FSLR) – Solar

To find the best energy stocks to invest in, take the Free Trial of the Research Center and Intra Day Stock Chat. Join the pros as they give exact entries and exits on stocks based on proprietary market analysis. This elite group profits in any market using their key levels. Step far above the institutions and become part of this elite group.

Bank stocks fall into the financial sector. Financial companies fall into many categories like savings and loan players that help the individual, institutional trading, money management holding companies, credit card issuers, mortgage lenders and others.

Banks accept deposits while accumulating those funds to provide credit. They then directly lend, or indirectly increase the money flow through investment. Some of the well known players are JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corp (NYSE:BAC), Citigroup Inc. (NYSE:C) and Goldman Sachs Group, Inc. (NYSE:GS).

Bank stocks were historically low risk investments that paid a high dividend. Many older individuals would hold these stocks in their retirement accounts as they were known as being safe investments. However, since the financial crisis in 2009, many bank stocks will fluctuate much more, creating a higher risk environment for investors. Derivatives, exposure to bonds at risk of default and other risky assets on their balance sheets keep smart investors from investing heavily.