This won’t be an article about short-term trading or any market that focuses on that. This time, we will skip over binary options, binary options robot and other things that help the short-term traders. No, this time, we will talk about long-term trading. When we say long-term, we are talking about people that buy shares and hold them for years. What advantages this kind of trading has and who are the people that do this are the subjects of this blog.
Benefits of this type of the investment
A deal like this is more of an investment than a trade as the trader keeps the stocks for years before they even consider the possibility of a sale. This passive form of the investment focuses on stocks from major companies. A trader of this type will not invest in a new company as its stocks don’t have their true value at that moment.
There are only several trades per year for a buy and hold trader. That means the amount of the commission is very small. But this type of trading also has a positive impact on portfolio management and the risk of compulsive trading. People who enter these long-term deals spend the majority of their time on research and the analysis of the stocks. They don’t rush into the deals as their investments get locked as stocks for a long period in which they gain very little to nothing.
Other parties on the market spend a lot of time on the daily price movements. A party that invests in these deals doesn’t need that info. The stocks they buy will be in their possession for a year or longer, and daily changes in the price mean nothing. Even in the research and analysis phase the info from that kind of price movement observation is insignificant.
Additional benefits of the long-term trading
The owner of the shares gets the opportunity to earn money through dividends. If the shares they bought give them the right then they will gain predetermined payouts that correspond with the growth of the dividends. Other buy shares that provide them with payouts according to the number of shares they hold. The difference between these two income sources is in the extent of rights they provide to the investors.
Some parties, mainly big companies, use the stock market as another way to evade tax. This isn’t anything illegal, as they invest the money as any other actor on the market. With the investment in the stocks, they avoid capital gains taxes. All along the way, their shares generate a small income. If we combine that with the money they save through evasion of those taxes, we can see the real extent of their profit.
The good thing about this “buy and hold” strategy is that it works. If you perform the research right then, the chances of a loss go to a minimum. You will profit from this trade, the only thing you require is the starting capital and a lot of patience.