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I have read about online trading sites that allow you to buy and sell stocks.

How much time would I have to invest in buy/sell/research in order to make a profit? Does anyone have any experience doing this?

I've also read about computer trading that may detract from or give an unfair advantage to the individuals/companies doing it. Would this affect my bottom line?

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10 Answers

Don't go for the 'fast buck'. There's no such thing.

There are two types of people that make money on the stock market: Investors and Speculators.

  • Investors are people that pick a stock that's relatively low, relatively secure, and buy the stock for the long run, 5, 10 years or more. Warren Buffet said his ideal period for investing is forever. Basically, a well run company should always be a good investment.

  • Speculators go for the fluctuations in stock prices. Day traders, Options, etc. It's risky business and you'll be able to lose a lot of money in a short term.

There's always a risk when you invest your money, so go with MrChrister's advise to start with a simulator.

Have fun.

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+1 If you want to be a speculator, just go to Vegas instead. At least there you get free drinks while you lose your family's nest egg. –  JohnFx Nov 18 '10 at 20:10
    
Nice comment :) –  GUI Junkie Nov 19 '10 at 11:15
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There's no easy money to be made speculating without gambling. If there were, other people would already be on it. There can very well be normal money to be made speculating, though. You can put in a lot of effort doing research, a fair amount of capital, take some risks, and hope to earn a decent return. Or you could apply the effort / capital / risks towards starting a small business. Your choice. Some people are, of course, better at one than the other. –  fennec Nov 19 '10 at 19:11
    
There are really more than just 2 types. Investor - somebody investing based on the fundamentals of the company, (technical) trader - somebody trading based on technical analysis (charts), speculators - somebody who trades based on expectations of some news about the company. Gamblers - who randomly select trades or based on a "feeling". –  Vitalik Nov 20 '10 at 19:34
    
Sure enough @Vitalik, I'm always simplifying in extreme. –  GUI Junkie Nov 20 '10 at 19:52
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Sounds like you are a candidate for stock trading simulators. Or just pick stocks and use Yahoo! or Google finance tools to track and see how you do.

I wouldn't suggest you put real money into it. You need to learn about research and timing and a bunch of other topics you can learn about here.

I personally just stick to life cycle funds that are managed products that offer me a cruise control setting for investing.

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Probably several years at least. Maybe more like ten years.

You need to watch a market for a substantial period of time to make money consistently.

If you hit it big before then, you beat the odds that were against you.

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What determines your profitability is not your time, but your TRADES.

It is probably a mistake to go into the market and say, I hope to make X% today/this month/this year. As a practical matter, you can make a lot of money in a short period of time, or lose a lot over a long period of time (the latter is more likely).

You're better off looking at potential trades and saying "I like this trade" (be sure to know why) and "I dislike that trade." If you're right about your chosen trade, you'll make money. Probably not on your original timetable, because markets react more slowly than individual people do. Then make ONLY those trades that you genuinely like and understand.

IF you get into a "rhythm," (rather few people do), your experience might tell you that you are likely to make, say, X% per month or year. But that's ONLY if the market continues to accommodate YOUR style of trading. If the markets change, YOU must change (or get lost in the shuffle).

Trading is a risky, if sometimes rewarding business. The operative motto here is: "You pay your money and you take your chances," NOT "You put in your time and eventually rewards will come."

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Very subjective question. some may do it in the first year, some lose money all their life. Some make a fortune and then lose it. Investing time is only a small part of it. some people can never do it just because investing is not for everyone. Just like any other business.

or you can invest into t-bill and CDs, you'll be profitable from day one.

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Hey; don't forget that you can lose money on Treasury bills and CDs as well, if you buy when interest rates are very low (cough cough) and inflation ends up being higher. (Cash can also lose money, but rates for savings accounts have the option of going up, whereas CDs and bonds you've already bought don't.) –  fennec Nov 18 '10 at 15:37
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The high frequency trading you reference has no adverse impact on individual investors - at least not in the "going to take advantage of you" way that many articles imply.

If anything, high-frequency trading is generally more helpful than harmful, adding liquidity to the system, although it can cause some volatility and "noise" in volume and other data, and the sudden entrance or exit of this type of trading can drive some abnormal market movements.

As to research and time needed for trading, most data suggests that the less you try to "beat the market", the better you'll do. Trade activity tends to be inversely related to returns, particularly for individuals. Your best bet is likely to learn enough about investment risks to ensure you're comfortable with them, and invest in broadly diversified asset classes, regions, and sectors, and then mostly leave them alone, or rebalance annually. You'll almost surely do a lot better that way than you will if you spend countless hours researching the "right" stocks to buy.

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Making a profit in trading is not a function of time, it's a function of information, speed, and consistency. Regardless of how much time you spend learning about trading, there is no guarantee that you will ever become profitable because you will always be competing against a counter-party who is either better- or more poorly-informed than you are.

Since trading is a zero-sum game, someone is always a winner and someone else is always a loser. So you need to be either better informed than your counter-party, or you need to be as well informed as them but beat them to the punch. You also need to be able to be consistent, or else eventually you will get wiped out when the unexpected happens or you make a mistake.

This is why resources such as full-time professional analysts, high-speed trading terminals/platforms, and sophisticated algorithms can provide significant advantages.

Personally, I think that people with talent and those kinds of resources would take all my lunch money, so I don't trade and stick to passive investing.

One funny story, I once knew a trader who was in the money on a particular trade and went out to have a drink to celebrate. The next day, she remembered that she had forgotten to exercise the options. Luckily, they had expired while in the money, and by rule had been exercised automatically as a result.

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To add to your zero-sum game point: Whenever a commodity sells at price x, that means there's an equal amount of people thinking that buying at x is smart and people thinking that selling at x is smart... Another comment is that: "If you're sitting at a poker table and can't figure out who the sucker is, get up and leave, because YOU are the sucker". –  Lagerbaer Apr 12 '13 at 21:50
    
That is a funny thing about markets where everyone has a different point of view but we somehow end up with an equilibrium price at any one point in time. –  JAGAnalyst Apr 16 '13 at 15:07
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It depends on how you define trading.

If you're looking at day-trading, where you're probably going to be in a highly-leveraged position for minutes or hours, the automated traders are probably going to kill you.

But, if you have a handful (less than a dozen) equities, and spend about an hour or so every week conducting research, you have a good chance of doing pretty well. You need to understand the market, listen to the earnings calls, and understand the factors that contribute to the bottom line of your investments.

You should not be trading for the sake of trading, you're trading to try to achieve the best returns.

Beware of dogmatists and people selling products that align with their dogma. Warren Buffet invests in companies for an extremely long investment window. Mr. Buffet also expends significant resources to gain a deep understanding of the fundamentals of the businesses that he invests in and the factors affecting those fundamentals. Buffet does not buy an S&P 500 index fund and whistle dixie.

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I suppose it depends on your goals and expectations, but I'd argue its not easy. Regardless of the chosen sub discipline of trading or investing you pursue there will be some theoretical and research work to do, some learning of the mechanics of the market, and some 'ropes' to learn upfront. After that the time frame you are working in, the complexity and time requirements of your methodology dictate how much time you need.

I personally spend enough time on it to be considered equivalent to a part time job, but I enjoy continually learning and researching. If I weren't constantly trying to improve and research I would say the mechanics might take a half hour a day. However, I would gladly do it full time if I were able. I believe that is important, if you simply want to make lots of money but hate the process you will likely fail.

As mentioned earlier if you are new to this the majority of your time will be spent initially learning whats out there, trying various things out, and finding what works for you. There are a lot of different ways to approach the market and a number of markets to approach. For me it took two years to find my niche and become profitable. Learn to loose small and keep your itchy fingers in check during that learning curve.

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Yeah, too subjective of a question

I shorted BP last year during the deep water crisis, using a leveraged account 20 times larger than the amount of cash I actually had, instantly profitable.

I was long Freddie Mac in March 2009 and that took several months to turn to move and turned a 100% gain

I've flipped penny stocks trading at .0001 cents, bought a few million shares and sold them at .0002 cents. Sometimes instantly, sometimes over several months because they were illiquid

I'm primarily a derivatives trader right now, which I did not know about or understand less than a year ago.

Dont have crazy targets, that how you will blow up your account. Have meticulously calculated plans.

Also you need to determine what kind of trader you are.

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