Stock Exchange Advantages and Disadvantages
Stock trading refers to the buying and selling of stocks as part of an investment strategy. The term stock is all the stocks held by an entity together with its accompanying rights. In American English, the stocks are collectively referred to as “stock”. A single share of an organization’s stock represents a fractional ownership in equal percentage to the outstanding shares.
There are three basic types of stocks available in the market: common stock, preferred stock and original issue stock. The first type is the most common one that attracts most of the interest of investors. This is because it offers an attractive price to the investors and is traded on the open market, thus exposing them to risks of price fluctuations. However, there are also disadvantages that are attached to investing in the stock market.
The disadvantage associated with buying stocks is that they can be difficult to sell once you have bought them. Also, in the absence of direct public reporting, the prices of these stocks can be difficult to ascertain. Companies usually record financial results for the last three months along with the net income and profits. So, one needs to check out for the recent development in the company before purchasing shares. Moreover, there is no guarantee regarding the liquidity of these shares in the market.
Bond investing is an investment strategy focusing on the purchase of fixed interest securities such as bonds, mortgage bonds, etc. Bond investing allows people to buy shares of low-risk government bonds, debt securities and corporate bonds. Most people prefer to bond funds as they are safer and offer higher returns. However, the returns can be lower than those of stocks due to the higher risk of lower interest rates on bonds and high volatility of prices of bonds.
Another disadvantage associated with the stock markets is that they can be a crowded place. In case you are looking for shares of companies that are hot, then you may not find it easy to find them. As a result, you may have to spend more time searching for the right shares. A disadvantage of this type of investment is that the potential gains are limited and are obtained only during the period when the company is performing well. In the absence of strong market leadership, the stock market can move against the trader’s wishes.
Stock exchanges are an efficient way of selling or buying shares of stocks and other commodities. The advantage of buying and selling on stock exchanges is that you can buy and sell shares of a company without having to travel very far. You can even purchase shares online from the comfort of your home. Although online trading of stocks has become a popular option among investors, most traders still prefer face-to-face communication with their broker to discuss the details of their investments. It is also advisable to invest small amounts regularly as these are known to give the most consistent returns.