Which is the best market to operate in for a beginning trader w/ STRONG book knowledge but no real experience?

Question

Would you recommend: Stocks, Futures, Options, Forex, etc. Kindly qualify your answer, if possible. ... PLEASE note, I am talking about "Trading" and not "Investing". ... Thanks in advance.

Answer 1

If you're a beginner, you should trade stocks and options and you shouldn't use real money. Set up a simulator account at investopedia.com - try out your strategies, etc before you play the game

Answer 2

If you are going to 'trade and not invest' then options represent the best thing for a beginning trader with STRONG book knowledge but no experience.

First, find out from your brokerage IF you would be permitted to trade options (some brokerages will have special requirements). If so, then make sure you know what has to happen when an option comes to its end--some brokerages, and this is critically important, automatically exercise an expiring option. You don't want that. If an option expires unexercised then you limit your risk and liability. This way you never lose more than you put up, you don't bet the farm. With options you are just playing with real profits (calls in the money, as in above the striking price, or puts in the money, as in below the striking price), or potential profits (puts and calls out of the money, selling on anticipation). It is a sort of low-overhead way of trading stocks. There are naked calls, if permitted, where you sell an option when price is rising and buy it back (to cancel) just before it expires when the option itself becomes worthless. There are dividend plays (the owner of the stock owns the dividend), where the price goes up before the announced cut-off for dividends, then falls after the dividend ex-date (doesn't always happen but often enough people look for these). For instance, a few weeks ago Lockheed was quite a bit cheaper than today. Instead of shelling out about 8-9k to watch it go to almost 10k, you shell out around 1k, but see it go to 2-3k in the same time. Interested?

Answer 3

It's important to realize that "investing" describes the outlay of risk capital with the expectation of some return on that principal, whether it's in equities, commodities, ventures or savings. "Trading" is simply a mechanical term to describe one process of investment.

Many beginning traders find themselves in the same boat as you: heavy on the reasearch, light on the experience. Some dive in head-first, brashly willing to soak themselves in what can be dangerous waters. Some are much more hesitant, dipping in a toe at a time to avoid being pulled under. What these two classes of traders lack is a clear purpose for being in these waters in the first place, and this is where you should start.

What kind of return are you expecting? Even if you're only here for the initial "learning experience", pick a goal and work toward it. Equities, commodities, forex, -- they each have potential rewards and risks, so your job right now is to figure out which vehicle will get you to your goal most efficiently, where your risk is calculably worth the reward.

How much risk can you handle? If you're amenable to the possibility that you could lose your entire investment on a trade with the potential to double your money, then leveraged vehicles should be something you consider: futures or forex. Otherwise, stick with equities, where your leverage is generaly 1:1.

Are you interested in being right or being profitable? Regardless what market you choose, you must be in touch with your ego at all times. So many beginning traders are more concerned with being "right" about the market that they hold onto losing positions, throw good money after bad money, or cap their profits for fear of losing them. Systems come and go, markets move up, down and sideways ... the question is: does your ego matter more than your portfolio?

These 3 questions should form the basis for a trading plan, whether you choose equities, commodities or currencies. Your plan will give you the structure to succeed in any of these markets, by outlining the rules by which you will trade. Your plan should detail where you want to go, how fast you want to get there, what you're willing to risk, and most importantly how you'll protect yourself from inevitable losses. If you manage your money, manage your risk and study your indicators, be they technical or fundamental, you'll succeed in any market you choose.

If you're interested in learning more about trading futures and forex, email me for a free copy of "Futures for Small Speculators" and "Forex for Small Speculators".

Answer 4

If you want to be a trader, I recommend you learning technical analysis very well and know your charts extremely well. All this is done through experience only. Once you master this, then trade whatever you want, stocks, options and futures.

Answer 5

Id say stocks. Commodities, and hedging mechanisms are a little tougher, and probably arent great for cutting teeth on.

Answer 6

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