Before moving on to the main topic, that is, stock market advanced strategies; let’s first understand the concept behind stock market. In layperson’s terms, a stock market is a market where shares of stocks are traded. These shares have been issued by several corporations (usually with the help of an investment bank’s underwriting services) and are publicly traded thereafter. Prices of shares in a stock market are prone to high fluctuation and are usually determined by:
- Demand & Supply
- EPS & EAT ratios of the issuing corporation(s)
- Dividend payout ratio(s)
Coming to the main topic, a large group of investors view stock exchange (and the shares therein) as a valuable investment. It serves both small and large investors. For instance, if you are looking for fixed-income, you could opt for a company’s preferred stock where dividends are fixed and have claim over common stockholders. On the contrary, if your objective is capital appreciation, you could invest in the stocks of blue chip companies (these companies are the leaders of their respective industries and have excellent reputation). Therefore, a stock market serves the requirements of many, but before investing please have a look at some professional and practical stock market advanced strategies.
Although there are many strategies for maximizing your benefits from shares of stock, yet we will explain the ones that are most critical and basic. These strategies are sophisticated and are practiced by advanced traders of stock to achieve their financial objectives. They include:
- Keeping updated with Initial Public Offerings
- Selling Shares Short
- Employing Margin Trading
Initial Public Offerings (abbreviated as IPOs) are the shares of companies who have recently turned public or whose shares are going to be traded (in the stock market) for the first time. Rational investors always keep themselves updated with the IPOs because they are quite beneficial.
01- IPOs are usually priced low because they have recently entered the market. When they are introduced, intelligent investors would buy them in the hope that their prices (or value) will increase significantly in some future period.
02- Another approach to benefit from an IPO requires investors to pursue a wait-and-watch strategy. Here, investors observe the pattern an IPO follows and when it becomes fairly priced, they would purchase it.
Have you ever heard about the term “risk arbitrage”? In such an arbitrage, investors typically purchase shares from a source, and immediately sell them to another party because of a price increase. That’s what we mean by selling short. Smart investors would always lookout for the best stock to sell at the best price. These small investors do not really own these shares as the change in value is rapidly high. Although it gives good profits, yet selling-shares-short is a risky strategy.
Margin accounts let you borrow money from your broker (or brokerage firm). With the help of the borrowed amount, you could enhance your stock purchasing and benefit from a specific opportunity. As a result, you could enhance the level of your profits because of the additional borrowed money and return it after realizing the profits. Furthermore, brokers (or brokerage firms) charge low interest rates than other financial institutions to attract investors.
In conclusion, it is always good to keep yourself updated with the trends in stock market. Experience, on the other side, is the best form of learning. You can always educate yourself, but it is the experience that makes you perfect. You can also create your own stock-market-advanced-strategies as you become a big player, but always remember; the higher the level of risk, higher is the return. Sometimes, a risk taking attitude (in the right direction) could help you reap higher-than-expected profits. Good luck!
