Making Money with Advanced Stock Market Techniques

Here you are a somewhat sophisticated stock market investor. You've bought and sold some stocks over the years and have made money on most of them. Let's face it, nobody bats 100%. You believe you are ready for some most advanced and profitable techniques. You think you can play with the big boys now.

There are numerous advanced techniques available to the stock market investor. We will go over three of them; using margin, selling short, and buying IPO's.

Margin - Buying stocks on margin can allow you to buy more stocks than the amount of money in your stock market brokerage account. A margin trading account uses borrowed money to increase the number of shares you can buy. This borrowed money is given to you by the broker whether it is an on-line stock account or land based. We will use a simple example. If you were to buy a stock worth $2,000 without the use of margin trading, you would have to pay the $2,000. But if you margin trade, your broker will lend you half of the amount or $1000 and you only need to spend the other $1000.

Let's say the stock doubles in value to $4000 over the next 6 months. You only paid $1000 so you have quadrupled your money. You will have to pay the broker his $1000, so the net amount is less than four times. The advantage is you could only afford the $1000 so your profit would have been $1000 in this example. With margin the profit would have been $2000 after paying back the broker his $1000.

The risk is your stock may go down in value. Unfortunately, the broker will want his $1000 regardless of the value if the stock.

Short Selling - The simplest explanation of short selling is short sellers sell stock they don't actually own with a belief the value will come tumbling down in the near future. If the price drops, they can buy the stock and then sell it at the lower price. The profit is the difference in value between the high and low price. Just think opposite of normal stock transactions. Normal; buy low sell high equals profit. Short selling; buy high sell low equals profit.

The risk here is if the stock goes up in value, you lose money.

An IPO - An initial public offering (IPO) is the transition of a company from a privately owned firm to a publicly held firm. Every incorporated business issues stock, although initially, to a few stockholders. If a company wants to raise capital without incurring debt, they sell stock to the public.

There are two ways to make money from an IPO. First, is to get in early and buy stocks, hope for a quick big increase in value, and then sell for a quick profit. Second is to watch and wait to see if a stock is fairly priced. If it's reasonably priced, grab the stock.

Remember that the greater the profit, the greater the risk. Advanced trading is not for everyone. If you think you are ready, try it on a small scale to first.