Stocks, also known as equities or shares, represent part ownership of a company. Stocks are traded in a stock market, a public market for buying and selling stocks, and other financial instruments such as bonds, futures, indices, and commodities.
Stock markets are an essential part of an economy because they enable companies to access funds from the general public quickly. Stock markets provide a regulated and safe environment for market participants to confidently buy and sell stocks with low operational risk.
Most stock traders buy and sell stocks with the main objective of profiting from the price fluctuations in stock prices. However, profit is not the only benefit of stock trading. This article will discuss the benefits of stock trading.
Benefits of Stock Trading
1. Safety against Inflation
The primary goal of investing is to guarantee a better future. However, investors must constantly keep track of the inflation rate. If the rate of return and inflation are equal, then the gains from the investment are nil.
However, the rate of return from trading stocks is always higher than the inflation rate. As a result, stock traders can protect their money from inflation by trading stocks.
2. Ease of Conversion or Liquidity
Stocks have many buyers available at any moment, which makes it easy to convert the stocks into cash. As a result, stocks are classified as liquid assets.
Other assets such as land would take days or even months to sell. Such assets are considered less liquid because they don’t have ready buyers.
The liquidity of a stock is one of the features that lure both traders and investors into buying stocks.
3. Safety and Transparency
The stock market is regulated and must follow the regulatory body’s principles and guidelines. The regulation builds confidence in investors by ensuring transparency and protecting the rights of both investors and traders.
The monies and rights of the stock market participants are protected by the regulatory body. The participants are thus safe from any fraudulent activities by the companies they invest in.
The stock market offers high flexibility to investors and traders. Newbies may not have a lot of capital and can thus buy stocks that are not highly priced. Advanced traders or traders with huge capital can buy higher-priced stocks. The stock market, therefore, meets the needs of every investor.
In addition, investors may buy stocks in a specific company and hold the stocks for years as the value goes up. On the other hand, active stock traders can buy stocks and sell them after a few hours, days, or weeks. As a result, stock traders can benefit from short-term price movements in stock prices.
Dividends are payments to investors from parts of the company’s profit and are paid annually. Most companies pay dividends even when their shares have lost value. As a result, investors get an additional source of income from investing in stocks.
Stocks are among the best ways of diversifying an investment portfolio. Stocks have an element of risk, and investors can spread their risk by investing in different companies. It is less likely that all the companies will lose their stock value.
Investing in a single company is risker than investing in several. A single company may be declared bankrupt, and you lose all your investments. However, you can spread the risk by buying stocks from different companies. The gains from other companies will surpass the loss from the company that is not performing.
7. Ownership Stake
By buying stocks in a company, the buyer acquires an ownership stake in that company. Investors can therefore be part of the owners of the companies that they like.
The ownership stake also comes with several benefits. The owners get to participate in major decisions through their voting rights. As a result, they can always keep the managers on their toes and prevent them from making irrational decisions that are harmful to the stakeholders’ interests. Furthermore, owners benefit from the company’s profits by way of dividends.
8. Hassle-Free Trading
The stock market has not been left behind as the world moves toward more advanced technologies. In fact, stock trading has never been this easy. Traders can buy and sell stocks easily with the help of technology.
Various mobile applications and web platforms allow you to buy and sell stocks from the convenience of your house. Traders can also get all the information, trends, and indicators that they need to determine which stocks to buy or sell.
Stock traders benefit a lot from trading stocks. However, this is not to say that stock trading is without risk. Stock traders must conduct proper research on stocks before the trade.