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3 Advanced Strategies For Making Money in the Stock Market

Jul 11, 2008
You are a veteran at trading stocks and you've been doing it for awhile. With your current expertise, you want to progress even further and start playing with the big boys in the market. It's time to learn about advanced stock market strategies to bring your skills to the next level. You want a whole new world of trading experiences and we're going to discuss them below.

Advanced traders use sophisticated trading strategies to achieve their financial goals. Techniques such as considering IPOs, selling short and margin trading are employed by the big boys to explore a different dimension of potential profits.

1. Considering IPOs

Referred to as IPOs, the letters represent the words initial public offerings. IPOs mark the formal transition of a specific company from a privately owned firm to a publicly held firm. Every incorporated business issues its own stock. The original stock in an incorporated business is initially offered to a few stockholders. A company can sell stock to the public to raise capital without getting into debt.

There are two basic ways to profit from IPOs. The first way to make money is to watch and wait. Consider whether a stock is fairly priced and if you think so, buy it. The second way to profit from IPOs is to buy stocks early in the hope they will quickly and significantly increase in value so you can sell them for a fast profit.

2. Selling Short

Selling short is an advanced technique used by sophisticated stock investors. Short sellers are on the lookout for the best stock to sell. The stock sold by short sellers is not owned by them as they believe the value will rapidly decline in the near future. When the price plummets, the short sellers can purchase the stock at a lower price to pocket profits and return the shares to their owners.

Selling short is a risky venture for adventurous investors. If prices soar instead of drop, you wind up losing money. Wise investors already know it's speculative whether a stock will fall in value. The potential for loss with short selling is greater than the potential to gain.

3. Margin Trading

With margin accounts, you are allowed to borrow money to purchase stock. By using borrowed money, you increase the amount of stock you can purchase. The money may be supplied by a stockbroker.

For example, you purchase stock for $2,000. If you did not use margin trading, you would need to pay this total sum of money for the stock. With a margin trade, the broker lends you half the amount. In this example, the broker would lend you $1,000 and you would come up with the other $1,000.

If your investment yields a profit of $10 per stock, the profit is based on the number of stocks you purchased for a total $2,000. You are then obligated to pay the broker back. If you did not take advantage of margin trading, you would only be able to earn profits on the number of stocks you could afford at $1,000.

Bigger Profits Mean Bigger Risks

If you want to earn major profits, you have to be willing to take big risks. The larger your profits, the greater the risk involved. You need to be both adventurous and patient to survive and profit from advanced stock market strategies. That being said, DO NOT attempt anything above without first consulting with your financial advisor.
About the Author
For more stock market strategies -- including a growing collection of stock investing tips and advice -- visit: http://stockinvesting101.net
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