In The Stock Market Greater Risk Could Mean Greater Profit

One of the many ways to make a larger profit on the stock market is to take grater risks. There are several advanced strategies and techniques and - or strategies that you can use. Each has its own level of risk and as we say, "In the stock market, greater risk could mean greater profit".

Before we get into the different techniques, it needs to be clear that when using any trading strategy or technique, you should play with money that is liquid. In other words, money you can live without, should things go badly. Never play the market with money you need to survive. Trade responsibly and knowledgeably.

One strategy is investing in an IPO (Initial Public Offer). An IPO is way that a company is moved from being privately owned to being publicly held, or stockholder owned. Simply put, they offer common stock to a few hand picked investors. If the need for capital is greater, then they might offer stock on the open market.

One way to use IPOs is to jump in right at the beginning, buy stock at the initial IPO price and hope for a big price jump initially. Then you would sell those shares on the stock floor and pocket the profits. The risk here is that the company may not be accepted well by investors at first. If that happens, the stock price will fall and you will lose money.

Another IPO technique is to simply sit back and watch the IPO stock after it has opened. If the stock is fairly priced, and goes up in value you can buy and make a profit but not as much as the trader who jumps in as soon as the stock is issued. The basic rule is "buy low, sell high and get out". This method carries the same risk but in the stock market, greater profit means greater risk.

Short selling is an advanced technique that is not used to its full potential. This is due to the high-risk level involved. Short selling is a serious speculation technique and carries maximum risk. A trader will sell stocks he doesn't actually have at a higher price in the hope of a downturn. If the stock goes down, he buys at the lower price, pockets the profit and returns the shares to the owners. The risk here is very high for obvious reasons. If the shares price increases rather than decreases, the trader loses money. Plus there is still the matter of the broker's commission, which is still owed regardless.

Then there is margin trading where a trader borrows money to buy a stock. The money can be borrowed from a broker, normally up to 50% of the investment. Obviously, if the stock goes up, you make the profit on your 50% of the purchase price and pay the broker back. Without the benefit of margin trading, the trader shoulders the responsibility of the entire purchase plus the broker's commissions.

Of course, if the stock goes down, you have lost part of your original cash investment and you still need to pay the broker for the loan and his commissions. This is another technique that is heavily laden with speculation and carries maximum risk.