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I have some questions about shares/stocks?
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11-27-2012, 06:55 AM
Post: #3
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ANSWER 1:
There are millions of investors, and they buy and sell stocks during the day. If an investor decides to buy 1000 shares of Ford, then the volume is increased by 1000. By the end of the day, it might be 14,243,505 or any other number. The VOLUME tells us how many shares were traded during the day. By itself, the daily volume number is not very significant. But if you know the total number of shares or the average daily volume, then you can figure out something. For example, if XYZ company has 3000 million shares outstanding (That is the total number of shares), then a daily volume of 300 million shares would be significantly large. This means 10% of the company shares changed hands in one day. OR if a stock has an average daily volume of 5 million shares, then a single daily volume of just 50,000 shares would be unusually low. ANSWER 2: No, you are confusing the VOLUME with OUTSTANDING SHARES. DAILY VOLUME = the number of shares traded during a particular day. OUTSTANDING SHARES = the total number of shares that the company has. The number of shares that can be created does not depend on how many shares already exist. One company has 150 million shares outstanding, while another has 5 billion. There's no limit. A company can create more shares when it wants to and as many as it wants to. ANSWER 3: CORRECT. ANSWER 4: Look, they usually tell this in the news. The company shareholders already know when more shares will be created, so it's not a big surprise for them. They know, and if someone says, "This company is a piece of crap. All they do is create more shares all the time, and I am tired of this stock. It keeps going down down down" Guess what! If an investor doesn't want it anymore, he can sell it and that way he won't have to endure the next wave of devaluation. Sure, the price goes down 1-2% when the new shares are created, but it's not that much. I don't think it's unfair. And besides, when you buy a stock, you take a risk. If you don't want the risk, don't buy the stock. It's that simple! ANSWER 5: Yes, it can go down, and it does go down. And if you make A LOT of trades, which is like flipping a coin, then you will sometimes lose money, and sometimes you will make money. Yes, from 21.60 to 22.60 is 4.6%. So, if you had invested only $100, then it would become $104.60. That's $4 profit on $100 investment. Not bad for one day. If you could do that everyday, by the end of the year you would have more than $1000. First year you would turn $100 into $1000, then next year you would turn the $1000 into $10,000 and so forth. In less than 5 years, you would be a millionaire! There are a couple of problems. First, stock trading doesn't work like that. You will not only make money but lose money. And your profits and losses are never the same. You may make $500 and lose $2000. You draw the line where enough is enough. If a stock starts to go down and you lose $10, is that too much? Do now get out or wait until it goes down $50? or $80? OR if a stock goes up $100, then do you sell? or do you wait for it to go up $200? IF it does go up to $200, do you sell, or do you wait for it to go up to $300? Trading stocks means you have to make decisions ALL THE TIME. And you can screw up at any moment. It's much easier to lose money than to make money. The second problem is commissions. To buy or sell stock, you have to pay a commission. Commission is $7 at Scottrade or $4.50 at Zecco. Now, if you make $4.60 a day, then you are losing money, because you have to pay a commission when you buy and when you sell. So, you pay $7 when you buy and pay another $7 when you sell your shares. That's $14 for simply buying and selling a stock! This means you better make at least $14 on your investments, otherwise you'll be losing money. So, making $4 a day is not enough, because if you make only $4 a day and pay $14 for commissions, then you're not really making any money. You're losing money. You're losing $10 a day. > Investing $1000 to make $1000 would be a much more beneficial investment > (In terms of other investments, I'm not talking about shares). Yes, turning $1000 into $2000 would be a 100% profit. And some stocks can produce that kind of return, but they are also more risky. With more profit potential comes more risk! |
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I have some questions about shares/stocks? - Benjamin - 11-27-2012, 06:46 AM
[] - frozen555 - 11-27-2012 06:55 AM
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