Many great benefits come with trading stocks. Today we analyze a good number of these benefits but let’s look at the market types first.
Primary Market– A primary market is where stocks are exchanged directly between the company and the public. Transactions are directly between the companies issuing the stocks and the buyers of the same.
Secondary Market– These are markets where stocks that we’re issued by companies can be bought or sold. In other words, the stocks exchanged were initially trade in the primary markets. Transactions happen directly between the buyers and sellers. Secondary markets are mediated by stock exchanges or brokers.
Benefits of Stock Trading
In the stock market, there are many stocks. These different stocks are placed in two categories.
Common Stocks – As suggested in its name, they are quite common. They give stock owners voting privileges. They also have several other benefits of their own.
- Capital growth – Financial growth is the aim of any trader. A stock market is a great place for traders to invest and grow their assets. Selling stocks is most beneficial to companies or even individual traders when they target favorable price movements.
- Dividends – Another way benefit of stock trading is that it provides dividends. This means that shareholders benefit from the total revenue of the company is shared out to the shareholder. This forms a good regular source of income for the investors.
- Liquidity – One of the biggest advantages of the stock trade is that they are easily liquidated. Common stocks are very easy to buy and sell which is one of the reasons for their popularity. Investors who need cash quickly can simply sell their securities. They don’t have to worry about the market because it is flooded with traders ready to exchange stocks.
- Tax Treatment – A unique benefit is stock trading is that they are quite beneficial when it comes to taxes. Dividends and capital gains are benefits of common stocks. They aren’t usually taxed very highly which adds to the popularity of the stocks and makes them a preferred investment option.
Another unique type of stock is;
Preferred Stocks – These types of stocks, unlike common stocks, do not offer investors the privilege of voting. This means that their level of influence as shareholders in the company is limited. Regardless, it is preferred by many investors because of its many benefits.
- High Income – Both common and preferred stocks give shareholders dividends regularly. However, preferred stocks usually tend to offer higher dividends than common shares which have increased their popularity.
- Reliable Income – This refers to the constant and fixed amount of income they receive from the organization that they have invested in. This usually comes just before shareholders get their dividends. It provides them with a reliable source of income.
- Variety – Preferred stocks vary and come in different forms with unique features. Some can be converted to common stocks while others may allow for dividends to be accumulated before shareholders collect them.
- Protection – A unique feature of equity trades is that they offer protection to shareholders. Many factors can impact an investor’s wealth such as heavy taxes and inflation.Stock markets provide the means to protect against such. They allow shareholders to receive better tax treatment, especially in the long term. This also helps slow and reduce the negative impacts that taxes and inflation would have had on the income in the long run.
- Dividends – Many companies pay out their shareholders in dividends. It is the means through which companies distribute profits to their investors. For the shareholders, dividends come with many benefits.
- Increased Returns – Dividends generally increase the returns of investors. Dividends are the value added to the initial investment of a shareholder.
- Reduces Volatility – Stock markets are quite volatile. Which makes them rather unpredictable. Dividends can help reduce the volatility because of the support they provide stock prices.
- Consistent Income Stream – Many companies pay dividends quarterly, bi-annually, or annually. This gives shareholders a consistent source of income.
- Stability – Many companies manage their finances well and this generally creates financial stability. Stability means that things like dividends will not frequently fluctuate but rather they tend to remain consistent. Such companies often show significant growth.
Wrapping It Up
Stock trading is a great way for traders to invest in stocks giving them part ownership of companies and organizations. This isn’t the only benefit of stock trading however, it is one of many.