Day Trading

This is a trading strategy in which the investor buys then sells, or sells short then buys, the same security on the same day in an attempt to profit from small movements in the price of that security. The strategy is to take advantage of rapid price changes to make money quickly.

This is a legal investment strategy; however, it is also highly risky and should be reserved for more experienced investors. Most of us do not have the wealth or time to make money by day trading, much less the ability to sustain the devastating losses that it can bring.

IPO’s (Initial Public Offerings)

As a company grows larger, it may decide to go public by issuing stock, or adding shareholders, through an initial public offering (IPO). The purpose of issuing stock and adding shareholders may be to raise capital, to provide liquidity for the existing shareholders, or a number of other reasons. When planning to issue an IPO the company must register its offering with the Securities and Exchange Commission (SEC). Typically, the company will work with an investment bank, which underwrites the offering by purchasing all of the shares at a predetermined price and then reselling them to the public in hopes of making a profit.

Mutual Funds

Mutual funds pool money from several investors (individual and/or institutions) and invest the pooled money in various types of investments (i.e., stocks, bonds, specific industries, etc.). Investment decisions are based on the common financial goals of the investors. The suitability of a particular mutual fund depends on the types and nature of the fund’s investments and the amount of diversification. Not all mutual funds are equal and investors need to determine if the goals of a particular mutual fund match their own personal financial goals.

The advantages of mutual funds are diversification, liquidity, and professional management. By pooling money from many investors, individual investors are able to own more securities than they might be able to afford on their own; therefore, owning a mutual fund may offer the investor instant holdings in several different companies. In terms of liquidity, mutual fund investments can be converted to cash upon request. And rather than managing your investments yourself, a mutual fund allows you to turn over the responsibility to a "professional."

Stocks

Stocks represent individual ownership in a company. A share of stock is equivalent to a proportional share of ownership in a company. The goal of stock ownership is to see the value of the company increase over time. As the value of the company changes, the value of the share in that company rises and falls.

Limit Order

Limit orders allow the customer to specify the price at which he or she is willing to buy or sell a security. While limit orders can help investors avoid buying or selling security at an undesirable price, thereby protecting them from the possibility of rapid price changes, there is the risk that the limit order will not be executed (i.e., the market price may quickly surpass your limit before the order can be filled). In addition, some firms may charge you more for executing limit orders.

Stop Loss Order

A stop loss order instructs a broker to sell a specific stock it if falls to a certain price. This is a useful tool in preventing investor losses. For example, you buy ABC Company at $100 a share and you instruct your broker to sell if it falls to $90 a share. On a given day the stock falls to $80 a share. Your broker sold your shares when they reach $90 thereby saving you an additional $10 per share loss on your investment.