Trading stock or stock derivatives such as options and futures is a popular way of making money through investment since it's relatively easy to start buying and selling stock through a broker. In addition, everyone involved in trading stock understands what they're dealing with, which cannot always be said about financial derivatives, for example. If you're buying shares in a company, the value of those shares is much more easily understood because it relates to the performance of an actual business entity.
To trade stock as a private investor, you'll have to go through a broker who will set up a brokerage account for you and will also execute any trades you wish to make. Basically, if you want to buy or sell stock, you contact the broker to tell them how much stock you want to buy or sell at which price or date – and the broker is the one who will execute the purchase with money from your investment account.
What's important to understand about this relationship is that brokers do not give investment advice (unless they specifically offer this as a paid service). They're paid on a per-trade basis. In other words: Actually choosing the stocks you want to invest in is still up to you, and you'd do well to limit the number of individual trades you have your broker perform to limit the amount of money you pay for their services. With that in mind, let's look at some common trading strategies.
Day Trading Stocks
Day trading is a strategy that involves executing lots of short-term trades to benefit from minor price discrepancies within a single day. This means that active traders aim to trade stocks over the course of one day and have all their positions closed at the end of the day – they don't carry over stock to the next day.
This strategy has gained popularity in recent years thanks to tools that allow people to day trade from home. However, day trading isn't exactly the most lucrative strategy for trading stock since profits are typically small on a day-to-day basis. You'll also have to devote most of your time to this strategy.
This stock trading strategy is popular with investors who have little time to spend the entire day giving orders to their brokerage firm. End-of-day traders look at the current price of a stock at the end of the day and make investment decisions based on how they think the stock's performance will change at the start of the next day.
Position trading is a buy-and-hold strategy in which the trader purchases stock and holds it for many months, years, or even decades to benefit from long-term. This means that in order to make a profit, traders ignore small-scale developments, expecting stock prices to go up in the long run.
This strategy also means that your money will likely be illiquid for an extended period of time. Unless you've bought dividend-paying shares in a company, you also won't be seeing any regular profits until the time you sell your stock.
This strategy involves trading based on what's on the news. For example, if the news says OPEC has decreased oil production, you can expect commodity prices for oil as well as stock prices for shares in the respective companies to go up. If you can access the news earlier than other traders, you're in an advantageous position. By the time the information reaches your competitors, you could already have bought up all the stock you can get, which you can then sell at a premium to the competition.
This approach only works reliably if you have a way to access news in advance of your competition, though. By the time it's on TV, it's probably already too late to gain an advantageous position.
Scalpers trade stock so that they benefit from an accumulation of very small trades based on minute price differences. They exploit unusually narrow or wide bid-ask-spreads, making tiny profits from each individual trade. The goal is to accumulate all of these small profits to a large one.
This strategy isn't for the faint of heart, as it requires constant attention to identify and exploit minute opportunities.
If you're an experienced investor with lots of cash, the proper tools, and the time to devote to trading 24 hours a day – then yes, you can strike it rich trading stock. Everyone else can still make money off of the stock market, but they'll likely not get rich quickly.
In fact, if you don't have the time to actively watch the stock market every day, you're probably better off investing your money into funds, such as mutual funds, exchange-traded funds (ETFs), or hedge funds. This will essentially allow you to benefit from investments in stock market (if the fund you're investing in trades in stock), while someone else does all of the day-to-day work for you – either the fund manager or, in the case of CARL's quants, the computer algorithm.
The best way for most people to benefit from the stock market is to invest in funds instead of buying and selling stock yourself. The main advantage here is that these funds often have access to greater investment capital, as they pool money from multiple investors, and their employees usually have more experience with the stock market and greater know-how about market mechanisms than most private investors.
The best option for making the most out of stock trading are hedge funds, as they are free to invest in almost anything, from normal stock to derivatives – and they typically have hedging strategies in place that aim to minimize the risk that you, as an investor, are exposed to. And if you want to further increase the returns you get from your investment while limiting the associated risk, CARL's quants are the best way to invest in stock-focused hedge funds.
CARL gives you access to various quantitative hedge fund strategies that focus on the stock market – and thanks to their advanced computer algorithms, they can completely eliminate human error from the equation. Machine learning and detailed global market modeling allow quants a much clearer understanding of how stock prices may evolve. That's why quants frequently outperform traditional hedge funds, and it's why CARL's quants can offer 15%+ targeted returns with only a $20,000 minimum investment.
One huge advantage of CARL's quantitative investment strategies compared to trading stock yourself is that you don't need to take care of everything yourself. In stock trading, you'd normally have to put in all of your orders manually, keeping an eye on the market constantly so you can make the most out of your money. CARL's hedge funds operate independently, making all investment decisions themselves, leaving you free to enjoy your profits from the stock market.
If you're looking for maximum gains, then investing in the stock market individually via a brokerage or online broker is not the best option for you. CARL's quantitative hedge fund strategies are a much more convenient way to generate potentially much larger returns quickly and easily. Simply set up your CARL account, prove you're an accredited investor, and invest with an account minimum investment of only $20,000 – and you're in! With the power of quants, you can maximize your stock market gains while retaining maximum liquidity at a manageable risk level.