A few very basic questions for starting traders

[AlbertDumb]

Good Morning im David a 26 year old graduted student and I just started trading. Now I have some basic questions I just dont really seem to understand and I hope you guys can help me with.

- Why do you need more capital to gain more profit? What the difference in making 10% with 1000 =1100. Or make 10% with 100 and 1:10 leverage = also 1100? What is wrong in my simple calculation?

-What return in percentages can professional traders make with stocks and leverage in a day, month and year? Is it 5% profit per day or 50% per month or 100% per year? whats average?

- I think a question many beginning traders have.. What is the most proftibale type of trade you can do? Is it also stocks with leverage? Cfd'smaybe?

Thank you very much

Greets,

David

[Aqndionlj]

With more capital you are able to make larger purchases. For instance I can buy one share and let it go up one dollar and I have made...a dollar. If I am able to buy 3000 shares of the same stock and let it go up only 50 cents I have made 1,500 dollars. As you know prices go up and down all day long. I look for one that is bouncing good and let it go down and buy in quantity. Just a 20 cents increase at 3000 shares makes me 600 dollars.

I don't look at percentages of what I am making. I might spend 150 thousand to buy one stock, keep it a few minutes and sell it for 500 dollars profit.

As far as most profitable trade I can't tell you but I can tell you the most that I have made in a week is 4 thousand and the most I have made in one day is 2,400. It is not always wins. You are going to have some loses in there also.

Now as to what stock I work with. The higher priced ones usually. On my candle chart you have stocks that go up in cents all the way from the bottom to the top of the screen. Others go up several dollars. You can either work with cents, or dollars. For instance KO is cents and PCLN is dollars.

[alutixusini]

Thanks Wardtom!

Ok so now it starts to make sense. With regard to the capital. if you buy 3000 shares and let it go up 50 cents, you make 1,500 dollars. I get this so far. But what if you have 3000 dollar capital and buy the 3000 shares or you have 300 dollar capital with 1:10 leverage and then buy the 3000 shares. Isnt this the same? Cant you just replace capital with leverage as long as you dont make to much risk?

Also there is in the news that a plain crashed, which is offcourse a very terrible event for a lot of people.. However this also effects the stock markets and traders? Now for me I have long term stocks (for a few years) and short term stocks (for a few days). How should you react to this as a trader?

I guess I just hold my long term stocks and my short term stocks are now downtrending (yesterday). What should I do, wait till they will recover? Or sell them and buyback when they are uptrending again? What do you do when an unexpected negative event hits the stock market and your trades?

[Anthonyfamy]

daviddavids said: ↑
1. What the difference in making 10% with 1000 =1100. Or make 10% with 100 and 1:10 leverage = also 1100? What is wrong in my simple calculation? ... But what if you have 3000 dollar capital and buy the 3000 shares or you have 300 dollar capital with 1:10 leverage and then buy the 3000 shares. Isnt this the same? Cant you just replace capital with leverage as long as you dont make to much risk?

2. What return in percentages can professional traders make with stocks and leverage in a day, month and year? Is it 5% profit per day or 50% per month or 100% per year? whats average?

3. Also there is in the news that a plain crashed, which is offcourse a very terrible event for a lot of people.. However this also effects the stock markets and traders? Now for me I have long term stocks (for a few years) and short term stocks (for a few days). How should you react to this as a trader?
Click to expand...
1. You don't really have a lot of leverage in buying stocks. If stock 'XYZ' is $3.00 per share, and I want to buy 1000 shares, then I have to have $3000 of buying power in my account. If I only have a cash account, then I have to have the whole $3000 in cash. However, if I have a margin account, I don't neccesarily have to have $3000 in cash. As long as I have $2000 in cash, then T.D. Ameritrade will loan me $2000 "on margin", thus giving me a total of $4000 buying power.

So let's say I buy the stock, using my $2000 cash and $1000 of their margin. It only takes a slight decrease of the stock price for TD Ameritrade to issue a "margin call", which is basically demanding that I put another $1000 cash in my account (within 48 hours, I think) or they can sell all my shares of that stock in order to get their margin money back. If their selling causes [b/me[/b] major losses, then too bad. Thus, margin can be a very dangerous thing and should not be used without great care.

Now if you just want to buy a stock option, not the stock itself, then it's possible to get some good leverage because you're only spending a fraction of the cash that the stock itself would cost you. Two guys here, Acstudio and Aahepp, can help you with advice on options. Use the search function to find some of their posts on options.


2. Last I saw, about 10% per year is the "benchmark"... meaning 10% is what the market does on any given average year. However, you should set realistic goals for yourself, based on your own abilities, and not get caught up in watching what your neighbor is doing. And I agree with Tom that percentages aren't that important. Actually pretty worthless in my opinion, cause I believe cash is what rules.


3. The Malaysia Airlines plane didn't crash, it was purposely shot down, but regular people see it as a crash and therefore the stock price of Malaysia Airlines dropped about 11%. If I traded on foreign exchanges, I would probably consider it a great time to buy some while the price is such a bargain. So for your short-term stocks, take advantage of the tragedy in every way you can. (That sounds cold-hearted, yes, but stocks are about making money, not about sharing our feelings.) For your long-term stocks, do nothing, as this is only a blip in the grand scheme of things and won't affect the long-term price.

[Arthurnuh]

But what if you have 3000 dollar capital and buy the 3000 shares or you have 300 dollar capital with 1:10 leverage and then buy the 3000 shares. Isnt this the same? Cant you just replace capital with leverage as long as you dont make to much risk?
Leverage is limited depending on your account size, broker, and even country.

Assuming you are in the U.S.:

1) $2,000 required for a margin account to gain 2 to 1 leverage at U.S. sanctioned brokers.
2) $25,000 required for 4 to 1 leverage for day-trading at most brokers to protect smaller accounts. There are exceptions to this rule though depending on the broker. Example: MB Trading offers 4 to 1 leverage to any margin account for day-trading but you have to follow the other SEC rules (and all margin accounts):
3) If under $25,000 in account, limited to 3 day-trades on a rolling 5 day period.
4) Only allowed 2 to 1 leverage overnight no matter how big your account is.

Read more http://www.mbtrading.com/stocksmarginrequirements.aspx

Be sure to check with your broker before trying to load up 4 to 1 intra-day, and keep count of your round-trip day-trades if under $25,000.

Also there is in the news that a plain crashed, which is offcourse a very terrible event for a lot of people.. However this also effects the stock markets and traders?
This is the million dollar question..... Your guess is as good as the gurus on CNBC. Seriously. No one knows. But if your right, it doesn't make you genius nor if your wrong it doesn't make you stupid. It's just one of those things, dang if you do, dang if you don't.

Trading is emotion based, so of course some people will freak out, scream 'world war 3' type shit, but depending on your strategy you can analyze your positions logically to take action. If you invested based on fundamentals, ask yourself if has affected the fundamentals of your stocks? If you own a Russian, airline or defense stock, maybe it will. If you own McDonalds or Walmart, maybe not. If you invested based on technicals, then stick to the chart read and your stop. If you invested based on both or even the potential to have potential (story dream) then you have to analyze in the same fashion that lead you to buy and determine if you should sell. Or you could hedge and play against what you own with some put option strategies or general market bear or gold plays.

Good Luck.