How to Improve Returns on Trading Stocks

(Credit: Bigstock) big data
January 22
5:04 PM 2020

When it comes to growing assets, nothing compares to the stock market. The potential returns that someone can enjoy by trading stocks, mutual funds, and currencies can be substantial. At the same time, many people simply refer to the market as gambling. This is because there is also the potential for someone to lose a substantial amount of money if the market goes down. Fortunately, there are a few ways that everyone can improve the returns they enjoy in the stock market. There are a handful of key factors that everyone needs to keep in mind.

First, think about the trading platform that is being used to exchange stocks, bonds, and currencies. Typically, when someone is looking to trade CFDs, it is important to have responsive trading software. Fast trading software is key because it allows someone to avoid an important issue called slippage. Slippage is the amount of time between when someone wants to place an order and when the physical order is actually carried out. If the software isn't quick, then the price of the stock, bond, or mutual fund may change significantly while the order is still being processed. This can cost someone money.

Next, it is critical to take steps to diversify the portfolio. Often, people place too many eggs in one basket. Maybe they think they have found the next "hot" stock that is going to make them more money than they can ever spend. This is simply not a smart way to invest and opens someone up to an incredible amount of risk. Therefore, it is critical to diversify. This means having more than one stock in more than one industry that can help someone manage their risk appropriately. Be sure to diversify all assets.

In addition, it is a good idea to find an inexpensive way to invest. It is often the hidden costs that trip people up when it comes to returns. Some people pay commissions on each trade they make. Other people might lose a percentage of their assets to a broker or financial adviser. Some people might even pay membership fees to use a certain trading platform. These are all important costs to consider that have the potential to hamper someone's returns. Try to find a way to trade stocks in a cheaper manner.

Finally, one of the most important ways that someone can improve their returns while trading stocks is to think about tax shields. People can lose a significant amount of their financial returns to taxes, most importantly capital gains taxes. There are ways that people can trade stocks and other assets in a tax-efficient manner. This includes a 401-K, SEP IRA, Roth IRA, or even a regular IRA. People need to think about all of these tax shields and how they might be able to help them avoid tremendous tax burdens.


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