Free Stock Market Investing Tips

As might be expected, one of the most “common” types of stocks is also known as the “Common Stock”. Categorized by rate, income and growth, a common stock signifies ownership interest in a corporation. Therefore, a common stock might have an aggressive growth although it is categorized as low-income and vice versa.

Companies that are considered part and parcel of the high-growth stage, are the companies that issue commons stocks and at the same time, do not pay dividends. As an investor, you might have a growing stock (in terms of prices) even though you are getting no dividend income.

On the other hand, some companies might pay dividends of common stock to its shareholders. Such companies are usually old, established entities that have already gone through phases of major growth, hence, their capability to produce a steady flow of dividend income to the shareholders. Such issued stock, whether it is common or preferred, is known as the “blue chip stock”.

Thus, when you decide to invest in stocks, you must identify your investment objective at first, whether it is growth or income. This will help you to choose the right company in which you can invest your dollars.

The term “day trading” refers to the practice of buying and selling stocks, and other immediately available trading assets, in the same day. Originally, day trading was only possible with brokerage houses that have been able to trade electronically with the NASDAQ since technology was introduced in 1971. However, day trading was brought to the masses with the exponentially exploding popularity of the Internet in the late 1990s when world financial markets enabled online trading.

Day-trading probably experienced its height of popularity during the tech-boom of the late 1990s when stock prices for tech stocks soared, often without any financial foundation. These unfounded high stock prices and bloated market capitalizations were realized after the enormous tech-bubble burst in 2000 and 2001.

For this reason, day-trading is a very risky practice that should be left to professionals. However, there is no licensing required so the practice still enjoys tremendous popularity. Day trading requires special research about the trends of the market during the immediate time period. These traders will search for news releases, hoping to find trends that will come to play that trading day. Often, day traders will join together in groups, sharing tips with each other. To have a chance of becoming a successful day trader, the investor must have the necessary time available to do proper research. Day trading is a full time job.

Another asset commonly focused on by day traders is the marginable stock. Marginable stock is simple stock approved for buying on margin. Buying on margin is purchasing on borrowed money from an established margin account at a brokerage. The SEC established new rules in marginable stock in 2001 by requiring that $25,000 must be maintained in an account solely for the purpose of margins trading. The SEC, in fact, advises strongly against day trading. A notice on their site reads, “Day traders typically suffer severe financial losses in their first months of trading, and many never graduate to profit-making status.” Obviously, this is a risky investment but day traders seem to thrive on the ultimate investment thrills.

If you ever want to double your money according to a certain interest rate, then you should follow the “Rule of 72″. It is the rule at which money will double every 7.2 years at 10%.

Just divide your yearly interest into 72. Let us take an example: if your interest for an investment is a constant 6%, then your money will double in 12 years (72 divided by 6). You can use the same rule the other way round, for example, you can calculate your interest rate based on the knowledge of how many years are required to double your money. Thus, to double your money in 2 years, you will need 36% rate (72 divided by 2).

Of course, and like any rule of thumb, these are approximate results, for to calculate the exact result in the case of a 10% rate, we have to follow the following equation, where “P” is the given principal, “r” is the interest rate in percent per year, “n” is the number of years:

P * (1 + r/100) ^ n = 2P

Please notice that the symbol ‘^’ is used to denote exponentiation (2 ^ 3 = 8).

Since r = 10%, therefore:

P * (1 + 10/100) ^ n = 2P

We cancel the P’s to get: (1 + r/100) ^ n = 2

Continuing:

(1 + 10/100) ^ n = 2
1.1 ^ n = 2

Since in calculus the natural logarithm (“ln”) has the following property:

ln (a ^ b) = b * ln ( a )

Thus:

n * ln(1.1) = ln(2)
n * (0.09531) = 0.693147

Finally:

n = 7.2725527

Which means that at 10%, your money will double in nearly 7.3 years, and that is extremely close to the 72% rule.

Penny stocks are the normal stocks which a share can be traded for for less than $5. In the US financial markets, moreover, “penny stocks” are traded outside NYSE, NASDAQ or AMEX and are sometimes looked down upon, hence, considered pejorative.

Nevertheless, SEC defines “penny stock” as the stock that has a low price and a speculative security that matches a small company whether it works through exchanges like NYSE or NASDAQ or the OTCBB and PINK SHEETS (two forms of “over the counter” listing services). “Penny Stocks” are also sometimes referred to as “nano caps”, “microcap stocks” and “small caps” although penny stocks are mostly determined by share price and not listing service or market capitalization.

On the other hand, in the UK, penny stocks- or shares- mean the shares in small cap bodies that have a market capitalization of less than £100 million or whose share price is £1 and whose bid spread more than 10%. The British penny stocks, moreover, are issued with the FSA (Financial Services Authority) warning. In France, the same term refers to risky stocks whose price is lower than 1 Euro.

Having market caps that are less than $500M, penny stocks (especially those trading on low volumes over the counter) are usually considered very speculative. They, moreover, are sometimes difficult to sell due to the fact that it is not always easy to find quotations for certain kinds of them. In other words, if you are thinking of investing in penny stocks, be prepared for the possibility of losing all your investment.

[youtube]http://www.youtube.com/watch?v=HpUZyulP0GM[/youtube]