Advantages and Disadvantages of Stock Trading

Stock trading is one of the most effective ways of making money and building wealth. It might seem easy but stock trading can be a risky venture especially for those who are lack of knowledge and experience.

Following are some of the advantages and disadvantages of trading in the stock market:

Advantages:
1) Big returns: There is a huge potential to make big profits in the stock market. Many investors make a good return by buying the shares at a lower price and then selling them after the price rises.
2) Accessibility: There is a wide variety of company shares available in the market, anyone with sufficient capital can choose the best one for their investment.
3) Electronic exchange: You can buy and sell shares through an electronic exchange, which is a lot faster than going in person to the stock exchange.
4) Liquidity: Stocks traded in the market have greater liquidity than other types of securities, which mean you can easily convert company stocks into cash by selling them to other traders in the market. This has made stocks a more attractive investment vehicle for many investors.

Disadvantages:
1) High risk: There is a risk of uncertainty involved in share trading. If a company goes bankrupt and you bought their stock, your stock may be worthless.
2) Extra cost for brokerage services: A traditional brokerage firm will offer a broad range of services but it is often more expensive due to the higher commission structure. And, many brokers charge additional fees for trading penny stocks.
3) Losses: Investors can face huge losses if the value of shares drop dramatically. Many factors can impact the prices of shares, such as natural disaster, negative rumors, profit downgrade, etc can lead to a fall in share prices.

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