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What Is After-Hours Trading, and How Does It Work?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Are you interested in trading stocks? If you pay attention to financial media, chances are you’ve heard that “the market moved lower in after-hours trading” at some point. While the stock exchanges might be closed, that doesn’t mean trading isn’t happening — and you might be able to profit as a result.

Here’s what you need to know about trading in the hours after the market is “closed.”

How after-hours trading works

What is after-hours trading? Trading in the after-hours session is just what it sounds like: buying and selling stocks after regular market hours are over. The New York Stock Exchange (NYSE) has a “core” trading session on weekdays from 9:30 a.m. to 4 p.m. ET, as does the Nasdaq. However, investors can continue to make certain trades after the market closes for the day.

The Nasdaq allows for an after-hours session from 4 p.m. to 6:30 p.m. ET, and the NYSE’s Arca electronic communication network (ECN) has a late trading session from 4 p.m. to 8 p.m. ET. You also can find regional exchanges with their own after-hours trading.

Using ECNs for after-hours trading

Aftermarket trading makes use of ECNs that connect buyers and sellers. ECNs are used for trading currencies and options in addition to stock market transactions.

According to the Securities and Exchange Commission, ECNs are considered alternative trading systems. They are computer-based and can manage transactions based on the best bid and ask quotes. You place your order with certain parameters, and the computer automatically looks for something that matches — and then executes the trade.

In most cases, you still need to place orders through your broker in order to participate in after-hours trading in the stock market. However, thanks to the rise of the internet and technology surrounding investing, many brokers can accommodate after-hours orders.

Check with your online broker to see when and how to place orders after the market closes. For example, your broker might make you wait until 4:05 p.m. ET to start placing orders even though, technically, aftermarket trading has already started.

Limits on types of orders for aftermarket trading

Realize, though, that you can place only certain types of orders during after-hours trading. In many cases, you’ll find that you can request the following types of trades after the regular markets have closed:

  • Buy
  • Buy to cover
  • Sell
  • Short sale

However, many brokers require that most (or even all) of your orders be limit orders. There also might be additional limits as to the timing of placing and executing different types of orders. It’s important to understand your broker’s after-hours trading policies before you start.

Can you trade before the market opens?

After-hours trading often is finished by 8 p.m. ET. But what if you want to trade early in the day? For that, exchanges also offer premarket trading.

The Nasdaq offers premarket trading from 4 a.m. to 9:30 a.m. ET, while the NYSE offers an early trading session from 7 a.m. to just before 9:30 a.m. ET. However, the NYSE Arca has a session that starts at 4 a.m. ET. With the NYSE, you actually can enter orders and queue them up half an hour before the open of the early auctions.

Together, aftermarket trading and premarket trading are known as extended-hours trading.

Why people trade stocks during extended hours

The news doesn’t stop when the market closes, especially when you consider that market hours don’t coincide exactly with acknowledged business hours. You never know when a major economic event, report or other news will break. Extended-hours trading allows investors to move on the news quickly rather than having to wait for the market to open before making a move.

Additionally, not everyone is available to trade during the day. Like a bank branch that stays open late or opens early, extended-hours trading is more convenient for some investors.

It’s also helpful to technical traders who like to run their numbers on the final transactions of the day. Using that information, it’s possible to buy or sell immediately during after-hours trading, depending on the patterns they see at the end of the day.

Risks of extended-hours trading

Any type of investing comes with a level of risk — and that’s true of after-hours trading. Before you decide to get involved with extended-hours trading, it’s important to understand that there are downsides.

  • Lower liquidity: Not every equity is available during after-hours trading. Additionally, with fewer investors involved, it’s not always possible to find the trades you want. You might want to make a trade that involves 1,000 shares, but there might be only 800 available at that time. Without market liquidity to meet your parameters, your orders might not be executed.
  • Bigger spreads: With extended-hours trading, there’s a bigger difference between the bid price and ask price. As a result, you might have a harder time getting a good price on your transaction.
  • Higher volatility: Prices have the potential to fluctuate wildly during extended-hours trading. Because of lower volume and liquidity, it’s more likely that small pieces of news have outsize impacts.
  • Competition against bigger investors: Institutional investors have been engaged in aftermarket trading for much longer than individuals. Plus, they’re often bigger players with access to more resources. You’re directly matched against these investors, and it can be hard to compete when you’re an average investor.

Even with these risks, though, some investors find it worthwhile to engage in extended-hours trading. Carefully consider your own risk tolerance before you move forward.

Bottom line

After-hours trading can be a great way to boost your portfolio’s returns. It allows you to move quickly on news and events that take place outside normal trading hours, potentially giving you an edge.

However, there are risks associated with aftermarket trading, and it’s not suitable for all investors. If you decide to try extended-hours trading, make sure to use only money you can afford to lose and that it fits with your overall long-term investing strategy.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Miranda Marquit
Miranda Marquit |

Miranda Marquit is a writer at MagnifyMoney. You can email Miranda here

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Investing

Here’s How to Buy Apple Stock

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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When it comes to investing, many people think about purchasing shares of individual stocks, such as Apple. By purchasing shares of a company, it’s possible to outperform the market (if you pick a “winner”), and you have the opportunity to receive dividends when the company decides to share its profits with shareholders.

However, before you buy Apple stock or make any other individual share investment, it’s important to understand the risks. While you could do better than the market with an individual stock instead of an index fund or exchange-traded fund (ETF), you also run the risk of losing more if the stock tanks. For most beginning investors, it’s a good idea to consider investing in an index fund or another diversified investment before moving on to individual stocks.

If you do decide to buy Apple shares, or any other company shares, here’s a guide to help you increase your chances of success.

Research the company

Start by researching the company in question. For example, if you want to invest in Apple, you can begin by looking at how the company is managed and where its revenue comes from. You also can consider the following information to help you determine how strong a company is:

  • Company balance sheets
  • Earnings reports
  • Price history
  • Dividend payouts

Past performance isn’t a guarantee of future results, but you can get a feel for how a company like Apple does during a stock downturn and how well it recovers.

Some brokerages offer stock screeners that allow you to input your preferences and then suggest stocks that match your expectations. No matter how you do your research, you want to make sure the company you choose is strong now and likely to remain strong in the future.

Consult your portfolio

Next, look at your portfolio. Does it make sense to buy Apple stock?

Start with the asset allocation in your portfolio. This is the balance between stocks and other types of investments, such as bonds or real estate, in your portfolio. Your ideal asset allocation depends on your goals and your risk tolerance. For example, if you’re relatively young and won’t need to access the money in your portfolio for a decade or two, it’s often recommended to have more stocks than bonds in your portfolio.

You also should look at the types of investments you have. If you’re investing in a tech sector ETF, it might not make sense to buy Apple stock, as you may already invest in the company through your ETF. On the other hand, if you decide you want to buy Apple stock, you could sell your tech sector ETF shares, invest part of the proceeds in a different sector, such as utilities, and then buy Apple shares with the rest.

If you aren’t sure, consider consulting with an investment professional who can help you determine how much of your portfolio should be in individual stocks and help you avoid a lack of diversification.

How much money should you invest in Apple?

Once you know how much of your portfolio should be devoted to Apple stock, it’s time to figure out how much money you can spend.

The first rule is this: Don’t invest what you can’t afford to lose. Realize that your money might be tied up for years in Apple stock. Additionally, when you buy apple shares, there’s no guarantee that they’ll be profitable in the long run; you could lose money down the road.

Next, be realistic about how much money you can invest. For example, as of Dec. 4, 2018, Apple stock (AAPL) is trading at $176.69 per share. It’s an expensive stock, so you need a plan for investing. If you can set aside $200 a month to invest in Apple, you could buy one share per month.

It’s also possible to buy fractional shares. Some brokers will let you buy as little as one-eighth of a share if you sign up for an automatic investment plan. That allows you to buy a small portion of the stock at a time so you can make the most of your money; otherwise, you might need to set aside what money you can until you have enough to buy one share.

No matter how you do it, make sure your other investing needs are being taken care of. Only buy Apple shares if you’re on track with your retirement and other goals and if you have enough room in your budget to buy Apple stock.

Log in to your brokerage account (or open one)

In order to buy Apple stock, you need a broker. For many investors today, online brokerages make it easy to buy and sell individual stocks, mutual funds, ETFs and other assets. If you already have a brokerage account, log in and see how much money you have available in cash.

If you don’t have a brokerage account, open one. In many cases, you can open an account fairly easily online. You’ll need to provide basic identifying information and your bank account and routing numbers to fund the account.

You need cash in your account to execute trades; otherwise, you might need to wait for your account to be funded. A regular ACH transfer can take several business days. It’s possible to set up an automatic transfer so money regularly goes into your investment account and you have cash available for trades when you’re ready.

Place your order

When you’re ready to buy Apple stock, place your order. Most brokerages will let you go to the trading page and enter the ticker symbol — in this case, AAPL — and show you how many shares (and fractions of shares) you can buy with the money in your account. Remember that you’ll likely have to pay a transaction fee, so the broker will subtract the fee from your available cash.

You may choose to place a market order. With a market order, your transaction executes immediately at whatever the current market price is.

Some brokers let you set different parameters for your order. You might be able to set up a limit order, which means the broker will execute the trade only if Apple shares drop below a certain price of your choosing.

You also might be able to set up a stop-loss order on your Apple stock. That is when you say you want to sell your shares if Apple drops below a certain price in an effort to limit your losses if Apple is trending heavily down.

For most investors, though, it makes sense to go through with a market order. If you feel like Apple is a solid company with long-term staying power, you can hold it through the tough times and reap potential rewards later, during a recovery.

Continue to monitor your investment

Keep tabs on your portfolio by checking in on occasion. For most investors, it doesn’t make sense to obsess about daily stock prices. The stock market can be volatile in the short term, so trading anytime there’s a small change can get expensive since you pay trading fees each time you buy or sell.

Instead, consider looking at your portfolio a few times a year to see if owning Apple stock still makes sense. Check quarterly reports and follow the news to get a feel for how Apple fares compared to similar companies in the same sector.

In many cases, it doesn’t make sense to make huge changes to your portfolio unless there’s been a fundamental change to a company.

How to buy stock in Apple: the bottom line

Buying Apple shares isn’t just a matter of adding a popular stock to your portfolio and expecting to meet your goals. Before you move forward, consider your portfolio and your long-term investing goals. What do you hope to accomplish when you invest in Apple?

Be clear about your goals and make sure you have appropriate diversity in your portfolio. That way, if you’re wrong about Apple, it won’t completely derail your plans. Investing in individual stocks like Apple can help your portfolio performance, but make sure it’s part of an overall plan.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Miranda Marquit
Miranda Marquit |

Miranda Marquit is a writer at MagnifyMoney. You can email Miranda here

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Investing

How Do Put Options Work?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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As an investor, you have a number of strategies at your disposal that can help you make money even when the market might be dropping. Additionally, you might be interested in using hedging to limit potential losses if you think the market — or a specific stock — is going to head lower.

One way to take advantage of price declines and turn them into sizable gains is to adopt a put option strategy. Before you move forward, though, it’s important to understand how put options work — and to realize that there are a number of risks associated with trading them.

What is a put option?

“A put option is a contract that allows you to sell a specific amount of an underlying asset at a specific price within a set amount of time,” said Allison Ostrander, an options trader with almost a decade of experience and the director of risk tolerance with Simpler Trading, a financial trading education company. “You have the option to sell when an asset drops to the agreed-upon price, but you’re under no obligation to do so.”

In order to better understand put options, it’s essential to know some basic terms:

  • Strike price: the agreed-upon price you are guaranteed
  • Expiration: the date at which the option expires and you’re no longer entitled to sell the asset at the agreed-upon price
  • Premium: the price you pay upfront for the right to buy a put contract
  • Assignment: when a put option contract goes through

When you buy a put option, you pay an upfront amount of money for a guaranteed price on an asset. If the price of the asset drops to the agreed-upon amount (or moves lower), you have the right to sell your asset at the price in the contract — as long as the expiration date on the contract hasn’t passed.

“Typically, this can be a great way to hedge your account if the market or the symbol you are trading appears like it will move lower,” said Ostrander.

How to make money with put options

A put option can be one way to profit in a bearish market or to limit your losses if something you own is losing ground.

Ostrander pointed to Facebook as an example of a situation in which an options trader who didn’t own the stock could have made money in the summer of 2018. “If you had opened an ‘at-the-money put’ earlier in the summer with a next-year expiration, your trades would be profitable,” she said. (As of December 2018, Facebook has declined by more than $50 per share since the end of May 2018.)

Another way to make money is to sell the put option contracts instead of buying them, said Lyn Alden, who owns investing research and education company Lyn Alden Investment Strategy and has been trading puts for about six years.

“For option sellers, their profits come entirely from the cash premiums,” said Alden. “Most of their positions expire without being assigned, meaning they were paid a premium for an option that was never used.”

Alden also said that selling put options allows investors to enter stock positions at a lower cost if they plan to hold for a while. For example, if a stock is trading at $50 per share, an investor might sell a put to buy the stock at $45. If they sell the put at a premium of $1 per share, they are basically getting in at $44 because they already have received the premium.

However, if you plan to sell puts to lower your cost basis, you should plan to hold the asset for the long term, said Alden, although it’s not the best strategy when you’re extremely bullish.

“Using that strategy, put sellers can make good money in a flat market,” Alden continued. “It works really well for volatile markets, sideways markets, or mildly bullish or bearish markets.”

Hedging your portfolio

You also can use put options to hedge against losses in your portfolio, said Alden.

Rather than watching an asset you own fall precipitously, it’s possible to limit your losses by buying a put option contract on something you’re bearish on. Say you own 100 shares of fictional XYZ Corporation stock at $135 per share. You think it will fall further, so you buy a put contract that allows you to sell your shares at $125 anytime in the next six months. Two months later, XYZ drops to $95 per share. You decide to sell. You get your $125 price, even though the market price is much lower.

At the time you bought your contract, your XYZ shares were worth $13,500. When you sold them, you got $12,500 for them instead of being stuck with selling them at the market rate of $9,500. You limited your losses to $1,000 — plus whatever the premium was — rather than $4,000. (This simple illustration doesn’t take into account trading fees and other potential costs.)

Put options vs. short selling

Put options and short selling are both ways to hedge your portfolio or make money when a market or asset is going lower.

With short selling, you borrow and sell in the market. The earning comes in if the stock declines. You buy back the stock at the lower price, pocketing the difference. Because short selling relies on margin, the losses could be much bigger than you could see trading a put option.

Short selling is more of an indirect hedge as well. Rather than shorting the asset you own, you might short a market. For example, if you own technology stocks, you might decide to short an index exchange-traded fund that focuses on the Nasdaq.

“If you own stock of the underlying asset, then selling short would go against the stock you own,” said Ostrander. Puts, on the other hand, allow you to directly limit your losses in the underlying asset by guaranteeing you a price on something you think will decline.

Short selling also can get complicated, and it is a more advanced strategy, according to Alden.

“Compared to short selling, buying puts is simpler and more accessible,” said Alden. “The main downside is there is a specific expiration date for the contract.”

Risks of put options

Anytime you trade a put option, the main risk is that you lose the premium you paid without any benefit, according to Ostrander. “If the underlying asset bounces and turns bullish or consolidates, you may find your put losing money, especially if expiration is near,” she said. “Buy time on your trade by going with a further-out expiration.”

For those who sell options, though, Alden warned that losses can result when positions are actually assigned. If you sell a put option and the buyer decides to go ahead and exercise the option when the strike price is reached, you will have to pay up. It can work out in the long run if the price recovers, but Alden said some positions can lead to significant losses.

Remember to risk only what you can afford to lose

Ostrander started with a practice account before she began risking real money, and that’s one way you can learn the ropes before you buy your first put option. Learn the markets and assets you plan to trade put options in and practice with the mechanics before committing funds.

In the end, trading put options can be a rewarding way to make money or hedge against losses. However, as with any investment, risk only what you can afford to lose. Carefully consider your risk tolerance and decide if trading put options is right for you.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Miranda Marquit
Miranda Marquit |

Miranda Marquit is a writer at MagnifyMoney. You can email Miranda here

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Investing

Day Trading 101: Learn the Basics

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

When most people think about “trading in the stock market” there’s a good chance they’re thinking about day trading. This perception of trading tends to get a bit of Hollywood glamour since we look at it as a way to make money quickly by hitting on the right trade at the perfect time.

But is it really as exciting and profitable as all that? Learning how to properly day trade takes work, discipline, and an iron stomach. Here’s what you need to know if you want to take the plunge.

What is day trading?

In his book, “Day Trading 101,” long-time trader David Borman made the point that most people are involved with long-term investing. They put money into their 401(k) accounts and wait for the money to grow over time, hopefully resulting in wealth at a later date.

He also made a distinction between “regular” stock trading and day trading. With stock trading, explained Borman, the goal is to make a profit off their moves. However, even with stock trading for profit, it’s possible to hold a position for months — or even years — until the trade reaches the desired level of profitability.

How day trading works is different from both of these forms of investing. The idea with day trading is to start each day completely in cash. Then, while the markets are open, you buy and sell with the hope that you can make a profit on each trade. All your positions should be sold by the end of the day, and you should, again, have nothing but cash in your account.

“Although the profit on each trade is often relatively small, the volume of their trades allow day traders to book huge profits on average-sized accounts over the year,” Borman said. “As the profits come in, the trader’s account grows in value, allowing larger trades.”

Risks of day trading

Jason Brown, an investing coach with more than 10 years of trading experience, pointed out that the biggest risk of day trading is the risk of loss. Most day traders operate using leverage — they borrow in order to make their trades. So, when a loss is realized, the leverage magnifies it.

“I once lost $75,000 in 24 hours on a trade that went against me,” said Brown. “For many people, that’s a huge deal. I had to get in there the next day and I made almost half of it back.”

It can also be difficult to deal with the emotions involved with day trading. “It doesn’t affect you as much to lose thousands of dollars at once after a while, but in the end it’s hard to have the stomach for it,” Brown said.

Another downside, according to Brown, is the fact that you have to sit there all day, every day. To be successful, you’re chaining yourself to the desk the whole time the markets are open. And, in the end, you might not see better results than if you’d just held on to something for a couple weeks or months.

“Sometimes, I’d see the direction of a trade and realize that if I waited a week or a month, I’d have seen a bigger movement,” Brown said. “I was there every day, trying to make five dollars, but I could have made 10 dollars holding something for a week.”

In the end, the risk of loss, small daily profits, the emotional rollercoaster, and being stuck at a desk weren’t worth it to Brown, so he quit day trading to focus on other types of investing.

Costs of day trading

To answer the question, “Is day trading worth it?” you first need to understand the cost. For the most part, you’re going to pay a per-trade fee. So, each time you make a trade, it could cost between $4.95 and $6.95 (or more), depending on what the online broker charges. If you make 20 trades per day, you can see how the costs could add up — with even the cheapest broker, you’re still looking at close to $100 per day in trading fees.

One way to reduce the cost of day trading is to look for brokers that offer discounts for active traders. Another way to reduce the cost is to use a broker like Interactive Brokers, which caters to day trading and charges about $1.00 for every hundred shares you trade.

However, realize that a broker that caters to day trading may not offer extensive research and education tools. Instead, you’ll be able to program your own shortcuts and even use algorithmic trading. For some beginners, it can make sense to use a more expensive broker and make fewer trades to limit costs until you have a good grasp of what you’re doing. After some practice, switching to a cheaper broker to make a greater volume of trades can potentially increase overall profitability.

If you’ve been designated a “pattern day trader” by your broker, you’ll also have to meet a threshold of having $25,000 equity in your account if you want to trade that day. A “pattern day trader” is a margin customer that day trades four or more times in any period of five business days, provided the number of day trades amount to more than six percent of the customer’s trading activity for that time period.

Don’t forget, too, that you’ll have to pay interest when you trade on margin. So that will cost you extra if you borrow to make your trades.

Rewards of day trading

When done right, day trading can be extremely profitable. Brown said that he made more than $100,000 in profits one year. However, it requires discipline to get to that point, and the learning curve (and losses) can be steep before you get to that point.

Plus, once you get going, day trading really does offer a thrill. When you make a good trade, said Brown, it’s a great feeling. On top of that, there’s something satisfying about working out the puzzle, trading with your gut and being victorious.

“For long-term investing, there’s not a lot of genius involved,” Brown explained. “You invest in an index fund and your performance is based on the market, not how well you pick stocks or execute trades.”

Popular markets to day trade

“Stocks and futures have always been very popular among day traders,” said Gary Norden, the principal of boutique financial markets consultancy Organic Financial Group. He’s a former pit trader with more than 30 years of experience in the markets. “In recent years, though, Forex markets have probably been the biggest growth area.”

Day traders can execute trades involving the movements of commodity and stock futures, as well as currencies in the forex markets, in addition to trading in the stock market. Norden prefers futures markets for day trading, though. He likes the transparency of the futures market as compared to options and forex, and finds futures a little more flexible in terms of trading than using the stock market directly.

However, it’s often a good idea to start trading in the types of markets you understand better. It can give you a chance to practice in an area you know, and have a better chance of success with before you begin allocating money to a new asset class.

What you need to get started day trading

It doesn’t require a lot of fancy equipment to begin day trading. If you have a good internet connection and a computer, you can get started. Some day traders do like to have at least two computer monitors, though, to better identify and manage opportunities.

When looking for a broker, it’s important to find someone who offers the tools you need. If you’re trading stocks, a broker with a good screening tool is vital, said Brown. You also need a trading platform that’s fast, since getting in and out of trades at the right time is one of the most important aspects of day trading. Also, consider the fees imposed and your frequency of trading. If you’re stuck paying $4.95 for each trade, it’s going to add up fast.

Find a broker that suits your style and offers you access to the markets you’re most interested in. You don’t need a lot of research and education tools from the broker to be successful, Norden said, but it does help if the broker or platform offers a news stream of current events so you can see potential impacts in real time. Research tools aren’t as important as the ability to trade immediately and find suitable trades as quickly as possible.

More important to getting started is your mindset. “Discipline is essential if you are to become a good day trader,” said Norden. “You must only trade when you have an edge and must cut losses very quickly.”

Because of the ability to trade with leverage and since you can start by making small profits, you don’t need a lot of capital to get started. A couple thousand dollars is usually enough to get going, although you’ll have to be patient with the growth of your money in the beginning.

Finally, you need a risk-taking mentality. It’s vital to be comfortable with the idea that you could lose a large amount of money in a short amount of time. You’ll also need to make sure that you’re only day trading with money you can afford to lose, or that you can tie up as you try to recover losses.

Bottom line

Day trading can be one potentially lucrative way to make money in the financial markets. However, it takes consistent effort and the ability to handle losses as well as gains. Before you begin day trading, figure out whether it’s the right fit for you. Consider your financial and emotional risk tolerance and make sure you’re prepared for the risks as well as the potential rewards.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Miranda Marquit
Miranda Marquit |

Miranda Marquit is a writer at MagnifyMoney. You can email Miranda here

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Investing

So You Want to Learn to Day Trade? Here’s How to Get Started

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

For those who know how to day trade, it’s one of the most interesting and exciting ways to make money in the financial markets. When you day trade, you complete trades within the same day. Basically, you start the trading session in cash, buy and sell assets throughout the day, and by the end of the day, your positions should all be back in cash.

However, learning how to day trade successfully can be a difficult process. Because there’s a substantial risk of loss, it can be nerve-wracking to many investors. It’s a good idea to carefully think through all of the implications before you take the plunge. If you think you’re ready to start, here’s how to get into day trading.

Assess your risk tolerance

Before opening any brokerage accounts or making a single trade, the first step is to realistically consider your risk tolerance. This represents how much risk you can take on. Financial risk tolerance — whether you can afford to lose money — is important, but so is emotional risk tolerance.

You might be able to easily figure out exactly how much money you can afford to lose as you learn to day trade, as well as how much you can lose on any given day if trades go against you.

However, the emotional piece is also important, said Sukhtej Singh, who worked for companies such as Goldman Sachs and Citigroup, as well as at a proprietary trading firm. Today, he is an individual trader and investing coach, and still has fond memories of the year he spent day trading. “It was fun in the beginning until I realized I was a super-sensitive guy,” he said.

In the end, he couldn’t handle the constant ups and downs and the emotional rollercoaster. “I still do execute trades on occasion,” said Singh, but day trading is no longer a regular part of how he tries to make money as an investor.

It’s important to know where you stand financially and emotionally, as well as being realistic about how much stress you can handle before it starts to negatively impact your life.

Ways to minimize the risk when learning to day trade

The best way to learn day trading is to get into it, according to Singh. You should research ahead of time, but in the end, practice is important. However, you’ll need to reduce your risk so you don’t lose more than you can handle.

As you start, make small trades, suggested Gary Norden, a 30-year veteran of the financial markets who currently runs Organic Financial Group, a financial markets consultancy. “Focus on making very short trades for small profits and look to trade small and often,” he said. “Frequency of trading is far more powerful than magnitude. Look for small gains, but make them often.”

Another advantage of small trades is that they reduce your need for leverage. Norden warned that making big trades on margin can magnify your results. Even though the potential reward is bigger, so are any corresponding losses. Keep trades short and small, and you won’t be tempted to borrow large amounts of money to hit a home run.

Finally, make sure that any money you invest is money you can afford to lose. If you do trade on margin, borrow as little as possible and only leverage what you can realistically afford to repay. You may be better off just keeping the amounts small to avoid unmanageable losses and leverage — especially as a beginner.

If you’d like to practice before risking your hard-earned cash, you can open a demo account with certain brokers. Look for practice accounts that allow you to mirror the decisions you’d make as a trader. This is a good way to familiarize yourself with the trading platform, as well as become adept at spotting times to enter and exit trades before you actually spend a penny of your own money.

Decide what you’ll trade

As you learn to day trade, you’ll find that just about any type of asset traded on the financial markets can be used. Some of the most popular day trading markets, according to Norden, include:

  • Stocks
  • Futures (stocks, commodities, currencies)
  • Currencies

Norden prefers futures when day trading. “They are transparent, offer specialized trading platforms, margin isn’t too high, and there is a range of different products of varying volatility,” he said. “Forex markets have become very popular, but they don’t always have the same advantages.”

However, what you decide to trade depends on what you’re comfortable with. Singh traded in the stock market, creating a watchlist of stocks that fit his style and monitoring the economic news and analysis related to those stocks. “You have to do a lot of research on your own,” he said. “Create a strategy that suits your personality and your knowledge.”

You also need to consider the cost involved with trading. Frequent trades can become costly, especially if you focus on the stock market. For example, if you make 10 trades a day at $4.95 each, you’ll spend close to $50 a day just in fees. That cuts into your profits.

Additionally, if you’re designated as a “pattern day trader” — buying and then selling the same security in a day four or more times in a five-day period — you are required to keep at least $25,000 worth of equity in your account.

With forex and options day trading, though, you may need to meet a different minimum. Perhaps a forex dealer expects you to have $10,000 in your account before trading, but you might not have to worry about paying a high trading cost because the dealer is making money on the difference between the bid price and the ask price.

Compare different platforms and determine what will be cost-efficient for the amount of trading you’ll do.

One of the main reasons stocks, currencies, commodities and their futures are used by day traders is the high trading volume found in these markets. There’s a lot of movement and prices fluctuate throughout the day, resulting in plenty of opportunities to profit.

Decide how you’ll trade

Figuring out how to day trade involves creating a strategy that works for you.

“I realized that day trading is more about knowing yourself and developing your own style,” said Singh. “Knowing when the profit meets your expectations and having the discipline to take advantage of it is vital.”

You also need to decide when you’re going to make most of your moves. There’s always a market open somewhere, especially if you trade currencies and futures. Check to see trading hours for the different types of markets you’re most interested in so you can take advantage of peak times.

When day trading stocks in the United States, you need to be ready to make your moves between 9:30 a.m. and 4:00 p.m. EST, Monday through Friday, when the market is open and active.

Some day traders like to set up systems and try to trade according to specific patterns. For example, the “Cup and Handle,” “Head and Shoulders,” and “Double Tops” are examples of patterns that some traders use to gauge when it might be time to place an order. Norden is skeptical about the effectiveness of these approaches, however.

“Popular chart patterns and indicators are popular because they’re easy to learn, but they are very unreliable,” said Norden. “Most who use these too much ultimately fail.”

Instead, figure out what you need to take profits on your small trades, make frequent moves that are positive, and then leave the position when you’re ahead. Norden says success in day trading is more about discipline and not getting caught up in big wins than it is about trying to use a specific system.

Some day traders also use algorithms to automate their trading, programming in specific moves to make when certain conditions are met. It’s also possible to buy software that allows you to do this. However, Norden pointed out that becoming too reliant on these algorithms can be problematic. Sometimes the markets don’t always behave in a way that is compatible with your automated trading plan.

Decide where you’ll trade

Norden pointed out that there are plenty of trading platforms available for use, including the Trader Workstation from Interactive Brokers, TradeStation, and Lightspeed Trader. Additionally, TD Ameritrade offers its ThinkOrSwim platform and Fidelity has Active Trader Pro.

As you evaluate which trading platform works best for you, consider the following:

  • Web-based vs. computer-based. Do you need something that works no matter the device? Look for a platform that fits your style. If you’re going to be making trades from different locations and using a mobile device in addition to a computer, a web-based platform might make sense. If you know you’ll be sitting at the computer making complex trades mainly from one location, a computer-based platform might be preferable.
  • Trade execution speed. This doesn’t just go for the platform. You also need to work with a broker that offers fast execution. Being able to time your moves — entering and exiting a position when you want — is one of the most important aspects of day trading.
  • Shortcuts. Are you able to create shortcuts or “hot keys” on your platform? The ability to create these sequences so you can execute trades quickly can mean the difference between profit and loss.
  • News stream. While in-depth research tools aren’t necessary for successful day trading, you do need access to a good real-time news stream. Most of the best platforms include a news ticker you can follow. Being able to see what’s happening right now, so you can figure out how it will impact your positions, can help you trade with the most immediate knowledge available.

Norden also suggested making sure you feel comfortable with your broker, and be confident that they will keep your funds accessible for day trading. Look for brokers that offer bulk-trading discounts and are equipped to handle very active traders, so that you can be assured that you’ll be able to execute orders in real-time as needed.

What else you’ll need for day trading

For the most part, said Norden, it’s fairly easy to get the equipment you need. Even though some day traders use multiple monitors, it’s not necessary. “A good quality computer with a fast internet connection is important,” Norden said. “You don’t need 10 screens and a lot of charts.”

If you’ve got the right risk tolerance, have built up background knowledge in the markets, and a solid computer with reliable internet, you should be able to start day trading without too much trouble.

Most importantly, though, Norden warned against rushing in. “Don’t be in such a hurry to start,” he said. “The markets will still be there in a few weeks’ time.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Miranda Marquit is a writer at MagnifyMoney. You can email Miranda here

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Investing

Market Order vs. Limit Order: Here’s What to Use

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

When you start trading stocks, you’ll run into terms such as “market order” and “limit order.” Because trades happen with the help of a broker (online or otherwise), understanding how these types of orders work is important so you know what you’re getting into before you risk your money.

Here’s what you need to know about market orders and limit orders.

Market order vs. limit order: At a glance

Market orders and limit orders are both orders to buy or sell stock — the main difference between the two is in the way the trades are completed. With a market order, you want to complete the trade as quickly as possible and pay the current market price. A limit order is about paying the price you want. You set parameters, and the trade only goes through once your requirements are met.

 

Market order

Limit order

How it’s priced

Current market price

Price parameters you set

How long it takes

As quickly as possible

As long as it takes to reach your price requirement

Cost

Broker’s regular trading charge

Might come with extra fees

There are reasons that a market order might not go through, but typically you can expect your market order to be completed as quickly as possible when the markets are open. With a limit order, there are no guarantees your price requirement will be met, so there’s a higher chance it will go unfilled.

What is a market order?

When most investors think about “trading,” they think about market orders. You send an order for a set number of shares and the broker fulfills the order using the current market price.

If you use an online broker, you’ll be able to see your available funds and calculate how many shares you can buy or sell at the current price, minus any trading fee. However, the actual price might change slightly from the time you place your order until the time it is completed. Some of the things that impact your final cost include:

  • Size of the order
  • Availability of shares
  • Time you place the order

For the most part, if you place an order for stocks traded on a major exchange, there are plenty of shares available for purchase. As long as your order isn’t massive, there shouldn’t be a problem. Most beginning investors place relatively small orders for frequently traded stocks, so market orders are usually settled quickly.

Realize, though, that there are times when trading may be suspended and your market order could go unfilled. These situations are usually rare; they mostly occur when a major event has taken place, such as if market losses become so huge that trading is stopped.

Finally, it’s best to avoid placing a market order when the market is closed. News about the economy or a particular stock can cause after-market movements that impact the price on opening. The difference between the price of a stock at the close of the markets one day and the open of the markets the next day is called a gap.

If you place a market order outside normal trading hours, the order will be executed when the market opens — and a gap could mean that you’re on the hook for a price you weren’t expecting.

Who should place a market order?

Market orders are often recommended for those whose main goal is to buy or sell shares immediately. When you’re building or rebalancing a portfolio, market orders make sense because they allow you to make your move now.

You don’t necessarily need to wait for a specific price because you’re working on long-term goals, like building wealth for retirement or adjusting your portfolio to match your risk tolerance. In fact, if you’ve signed up for an automated investing plan, market orders are going to be regularly used.

What is a limit order?

Rather than buying at the current market price, a limit order allows you to set specific boundaries on what you’re willing to pay or accept for a security. There are two main types of limit orders:

  1. Limit buy: You set a ceiling on the amount you’re willing to pay for a security. Your order isn’t triggered unless the price falls below your top limit.
  2. Limit sell: You set a bottom on the amount you’re willing to accept for a security. You only sell your shares if the price rises above your designated minimum.

With a limit order, you can be reasonably sure you’ll get the price terms you want before you make a move.

However, there are other reasons a limit order could go unfilled. First of all, the price might never reach your parameters, so you don’t end up ever executing your trade. You could end up not buying more shares, or you could end up holding onto shares instead of selling them.

Another concern is that the security might meet your price criteria but there might not be enough liquidity involved to execute the trade. You can reduce that risk by approving a partial fill of your order.

Unlike market orders, limit orders are often placed after hours. With a limit order, it’s possible to use a price gap to your advantage. Realize, though, that limit orders are more complex, so you could end up paying higher brokerage fees, cutting into your profits.

Who should place a limit order?

In many cases, limit orders might make sense when you’re looking at securities that meet one of the following descriptions:

  • Low volume
  • Very volatile
  • Wide difference between bid and ask prices

For the most part, limit orders should be attempted by those who have more experience with trading. It’s also a good idea to understand the asset you’re trading before moving forward.

Market order vs. limit order: Final thoughts

For most investors, it makes sense to start with market orders and become comfortable with the mechanics of trading before trying more complex orders.

In order to increase the chance that your limit order will actually be executed, you need a good feel for how the markets work, and how specific securities respond to market conditions. Placing market orders first, and getting used to trading, can help you develop that sense.

No matter what you choose, though, be sure that you have a long-term plan for investing so that you’re building wealth.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Miranda Marquit is a writer at MagnifyMoney. You can email Miranda here

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News

Top U.S. Student Loan Officer Resigns, Slams Trump Administration

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

iStock

The U.S. student loan ombudsman, the top government official in charge of protecting student borrowers from predatory practices by lenders and loan servicers, announced that Monday he was resigning his post in protest at the end of this week.

Seth Frotman’s resignation letter, obtained by the Associated Press and National Public Radio, offered scathing words about what he said was a shift by the Consumer Financial Protection Bureau (CFPB) under current head Mick Mulvaney — and the Trump administration more broadly — to protect major financial interests over the needs of consumers.

“Unfortunately, under your leadership, the Bureau has abandoned the very consumers it is tasked by Congress with protecting,” Frotman’s letter read. “Instead, you have used the Bureau to serve the wishes of the most powerful financial companies in America.”

Consumer advocates reacted with dismay to the news, while continuing to take the White House to task for what they see as the erosion of student loan and other consumer protections since early 2017, when President Donald J. Trump took office.

What does the student loan ombudsman do?

As the student loan ombudsman, Frotman served as an advocate for student borrowers in their complaints against student loan servicers.

When dealing with servicers, the ombudsman can help borrowers get the information they need, as well as help them get relief when they’ve been wronged.

Frotman’s resignation comes after the decision to close the Office for Students and Young Consumers, the only federal government office specifically tasked with protecting student borrowers.

“Assistant Director Frotman has been a champion of the 44 million Americans who owe student debt,” Christopher Peterson, the director of financial services at the Consumer Federal of America, said in a press release. “His work at the CFPB has curbed industry abuse and reclaimed hundreds of millions of dollars for student loan borrowers.”

Since its inception, the CFPB has overseen the return of about $750 million to student borrowers who suffered from unfair practices by student loan servicers and taken other actions to protect consumers.

“The CFPB has power to protect consumers through enforcement actions like fines and lawsuits,” said Jay Fleischman, a student loan lawyer and consumer advocate. “Since the Trump administration took over, and more specifically, since Mick Mulvaney has been in charge of the CFPB, actions like the Navient lawsuit have pretty much ground to a halt, leaving consumers exposed to abuses by servicers.”

Not everyone has been happy with the CFPB, however. Efforts to reduce the power of the CFPB have been underway since it was formed, and Mulvaney, a former Republican congressman representing South Carolina, has been one of its biggest detractors.

“It turns up being a joke, and that’s what the CFPB really has been, in a sick, sad kind of way,” Mulvaney told the Credit Union Times in 2014.

Texas congressman Jeb Hensarling, the Republican chairman of the House Financial Services committee, wrote a February 2017 op-ed in The Wall Street Journal, in which he called the CFPB unconstitutional: “The CFPB has eroded freedom, trampled due process and killed jobs. It must go.”

How you can protect yourself as a consumer

Despite the disdain some policymakers have for the CFPB, consumer advocates like Peterson and Fleischman insist that the agency had done a lot of good, putting the needs of citizens ahead of the concerns of the financial industry.

“The [Trump] administration has seized control of an independent consumer watchdog and is strangling one of the only agencies in Washington dedicated to looking out for the rights of ordinary Americans,” Peterson continued in the press release.

So, what can you do if you’re unsure of the protections available to you?

Fleischman said that it’s still possible to file complaints with various government agencies, including the Department of Education and the CFPB. However, he conceded that with the contraction of offices designed to protect students, such a move might be inadequate.

“In addition to filing a complaint, consider sitting down with an attorney,” he said. “Many consumer advocate attorneys work on a contingency basis, so it won’t cost you anything to consult one.”

Fleischman recommended visiting the website for the National Association of Consumer Advocates for information on your rights and how to find a student loan lawyer that might be able to help you.

It’s also possible to influence future policy, and protect the CFPB and the office of ombudsman, by being politically active. Pay attention to higher education bills in Congress, and contact state and federal representatives with your concerns.

And, of course, vote for legislators that will implement policies designed to protect consumers (and encourage your friends to do the same).

“The student loan ombudsman has always been tremendously helpful,” said Fleischman, adding that as the government gives up its role in consumer protection, it’s up to private attorneys and consumer advocates to take on a heavier burden. “That’s what we’re here for. We’re the protectors. And now we’re some of the only ones left.”

This post originally appeared on StudentLoanHero.com, a subsidiary of LendingTree. 

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Miranda Marquit
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Miranda Marquit is a writer at MagnifyMoney. You can email Miranda here

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Featured

6 Months After Settling Sexual Harassment Claims, a Worker Faces the Consequences

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Sexual Harassment Claims
Illustration: Kelsey Wroten for MagnifyMoney

Chelsea Jones thought she’d feel relieved.

In the spring, Jones’ employer agreed to settle her claims that she was sexually harassed by her manager. The matter was handled out of court, and Jones is not allowed to discuss the terms of the settlement. She agreed to share her story with MagnifyMoney under the condition of anonymity. We have changed her name and other identifying details in this story.

Soon after her settlement was finalized, Jones tendered her resignation. It was the end of a months-long battle to convince her employer that her manager’s unrelenting advances — offers to rub her back, late night texts and weekend phone calls — were worthy of of retribution.

But it was hardly a victory. Six months later, Jones, a single mother of a young daughter, is cashing unemployment checks and struggling to find a new job. As far as she knows, her former boss is right where she left him.

“The worst part is that I second-guess myself now,” said Jones, reflecting on the harassment, which she said began after she received a promotion last year. “I’m a hard worker, and I feel like I do a good job. But what if I’m not? Was I really good, or was it always about something else?”

Coming forward

Whether the employee is a famous news anchor or an office assistant, reporting sexual harassment at work is never an easy battle to wage alone. It’s arguably more difficult for the average worker, who may not feel they have the professional clout or the financial means to take action. Workers filed roughly 6,800 sexual harassment charges through the Equal Employment Opportunity Office in 2015, down 14% since 2010.

For Jones, speaking up was only the first of many challenges she faced. While her attorney squared off against her company’s legal team behind closed doors, she continued coming to work each day, where she said she was subjected to an increasingly hostile environment.

Even filing a simple human resources complaint can be rife with complications, exposing workers to forms of retaliation that, while illegal, can make it difficult to muster the willpower to keep fighting.

“[Workers] can be fired or suffer other consequences,” said Gary Young, an attorney who specializes in workplace harassment issues at the business law firm Scarinci Hollenbeck. “Even if you have your day in court and are vindicated, it can be a long road and it’s tough to go through the process.”

No one understands that process better than Jones.

Jones was in her late 20s when she started working for the Boston-area firm in 2013. For Jones, it was something of a professional comeback. She had recently ended a marriage and went back to school to earn her Associate’s Degree. She was thrilled to be hired and eagerly accepted a promotion a couple of years later.

The new title came with a higher salary and, she soon discovered, an increasing amount of unwanted attention from her boss.

“We were at a conference together, and he was offering to give me a back massage, to put his arms around my shoulders,” said Jones, now 30. The advances continued for months. According to Jones, her manager insisted on buying her gifts on her birthday and began texting her late at night and on weekends. She asked her manager to stop his advances, to no avail.

Worried that her coworkers would get the wrong impression about their relationship, Jones decided to report his behavior to her human resources manager.

“I was hoping to resolve the issue [through HR], and change my position so I was no longer sitting outside of his office,” Jones told MagnifyMoney. “My goal wasn’t to file a lawsuit.”

Dead-ends and demotions

Illustration: Kelsey Wroten for MagnifyMoney
Illustration: Kelsey Wroten for MagnifyMoney

HR proved to be a dead end. As a solution, her HR manager offered to put Jones in an administrative role in another part of the company. The new job would have moved her out from under her manager’s purview, but it was effectively a demotion.

She turned the offer down. In the ensuing weeks, her boss increasingly began cutting back her job duties, she said. He yanked her budget for a previously approved work project. She was told she could no longer use support staff to see the project through.

At a loss for what to do, Jones posted a message on a Facebook support group for single working moms. A member referred her to an employment attorney in her area, who offered her a free consultation.

“He said I’m young and if I file a lawsuit it will become public record and it could hurt my future employment,” Jones said. She agreed to give it another try with HR.

When she submitted another complaint, Jones said she received a warning: HR had noticed her performance was slipping and her colleagues were complaining. It was clear she was getting nowhere.

Jones went back to the attorney, who agreed to take her case. The attorney compiled all of Jones’ allegations — she had documented every unwanted advance, phone call and text message from her manager over the years — and sent a letter to her company informing them of the pending lawsuit.

“Once [my boss] got the letter, obviously it made everything way more hostile,” she said. “He didn’t speak a single word to me. I was going [to work each day] having no work to do. Then they started putting me on odds and end jobs not even related to what I was supposed to do there.”

She considered quitting, but Jones’ attorney encouraged her to hang tight.

It can in some cases help workers in sexual harassment cases if they keep working, said Paula Brantner, an attorney with Workplace Fairness, a non-profit that promotes employee rights, says . “First of all, you are required to give the company a chance to rectify the problem,” Bratner said. Quitting before a complaint is resolved can also remove some of the bargaining power in settlement negotiations. Companies are often eager to keep matters like sexual harassment under wraps.

Staying on the job can also give workers the opportunity to keep track of any retaliatory behavior. Workplace harassment lawsuits are often stronger if workers can prove their employer retaliated against them after they took matters to human resources. In Jones’ case, she was offered a demotion and her job duties shrank.

“Even if the initial harassment claim fails, the retaliation claim can subject the employer to as much or more liability as the underlying harassment claim,” said Brantner. “Judges and juries don’t like to see people [follow proper protocol], only to be subjected to more injustice.”

When her attorney reached a settlement with her employer, Jones decided to accept.

“One of the reasons I accepted a settlement instead of going to trial is that I didn’t want to be publicly seen as a woman who files these claims,” she said.

Her allegations will never be made public, but the ordeal has effectively stymied the beginning of what was a promising new career. Jones is still looking for a new job.  She worries about using her former employer as a professional reference, despite the fact that it was her first significant job in her chosen profession. While she continues her job search, Jones is studying part-time to complete her Bachelor’s degree. Under the terms of her settlement, she was entitled to collect unemployment benefits, which has given her a bit of a financial cushion. Her settlement award remains in a savings account, untouched.

“My goal with the settlement wasn’t just to get some payday,” she said. “I’d like to think it was enough to make him stop [doing this to other women].”

Handling harassment at work

We’ve spoken with legal experts and put together some tips for workers who feel they are facing harassment at work.

Identify the unwelcome behavior. Brantner, who has represented workers in harassment lawsuits, says the first thing to do is to recognize when you are being sexually harassed. She says sexual harassment is defined as unwelcome sexual advances or verbal or physical conduct of a sexual nature that is made explicitly or implicitly a term of your employment. It can also be conduct that interferes with your work or creates a hostile work environment.

Report the behavior to your human resources department or other supervisor. When you’ve identified the unwelcome behavior, Brantner says the next step is to report it and ask that it stop. “If the behavior continues after you have clearly communicated that you wish it to stop, you need to decide if you wish to take further action,” she says.

Document everything. If you want to bolster your case, Young suggests documenting any evidence of harassment. Keep a log that includes dates and times, as well as descriptions of the offensive behavior. Note your attempts to speak with human resources and the outcomes. Save emails and written notes to back you up. In some states it is illegal to record conversations without the other person’s knowledge, so check your state’s laws or consult an attorney before you take that route.

Be on alert for any form of retaliation. Speaking up about harassment in the workplace can trigger retaliatory behavior from colleagues. It’s important to keep close track of anything your colleagues may do in order to undermine your position after you have spoken up about harassment. The person you are accusing of harassment might try to make it difficult for you to do your job, or, in Jones’ case, demote you or remove your job duties. Document these instances carefully in order to support your case.

If your employer doesn’t act, contact a lawyer or the EEOC. If you aren’t getting results with your employer, Young recommends visiting the Equal Employment Opportunity Commission (EEOC) website to learn about filing a charge. You can use the EEOC’s assessment tool to get a better idea of what to expect. It takes about five minutes to use the tool, and you will be directed as to your next course of action. Some states have rules on how much time can go by before harassment suits are filed. The EEOC can help you expedite the process if needed.

Money doesn’t have to mean everything. Even if you don’t have unlimited financial resources to hire a legal team, you still have options. Many lawyers will take on workplace harassment cases on a contingency basis, which means they are paid once you have a settlement or win the lawsuit. For example, Jones’ attorney accepted a percentage of her settlement earnings as payment and collected no other fees. If you file with the EEOC or the Department of Labor, or with the appropriate office in your state, the government will investigate if there is probable cause to pursue a lawsuit.

Edited by Mandi Woodruff
Illustrations by Kelsey Wroten

*Names, dates and locations have been changed. 

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Miranda Marquit is a writer at MagnifyMoney. You can email Miranda here

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Featured

How to Get Out From Under a Bad Car Loan

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Bad Car Loan

When you have a troubled credit history, the prospect of financing a new car can be daunting.

And then you see the ads on billboards, in newspapers and all over the Internet. “No credit? Bad Credit? No problem!” This is the marketing gimmick dealers across the country use to convince subprime customers — in the world of auto lending, that means people with credit scores below 600 — they can afford the car of their dreams.

Dealers make a point of convincing consumers they can afford cars, says Bruce McClary at the National Foundation for Credit Counseling. They achieve this by focusing a customer’s attention on their monthly payment, rather than on the total cost of the car. By extending the terms of the loan, they can make it appear that the customer is saving money. In fact, they’re paying more in the long-run. The average term loan for subprime auto borrowers is 72 months, compared to 66 months for  prime borrowers.

The troubling thing is that this strategy is working. According to a recent MagnifyMoney study, we found 82.6% of auto loan borrowers who took out a loan with a term longer than 5 years did so just to lower their monthly payment.

These long-term loans are rarely the awesome deal they appear to be at first blush. According to the most recent data from Experian, auto loan rates for subprime borrowers can easily reach 15.25% for a used car and 11% for a brand new car — triple the rates a prime borrower might qualify for.

The longer the loan term, the more time interest has to pile up. In fact, some borrowers find their loans balloon so much overtime that eventually they owe more than the car is actually worth.

“You’re left spinning your wheels to make progress on the loan and the car is worth less than you owe,” says Bruce McClary, spokesperson for the National Foundation for Credit Counseling.

What to do about a bad auto loan

Nearly 20% of auto loans are held by subprime borrowers, according to Experian. If you find yourself weighed down by an auto loan you can’t afford, it’s possible to get out from under it with careful planning. Here are a few tips to get you started:

Know your car’s value. You can look up the trade-in value of your car on sites like Kelly Blue Book. If the value is less than what you owe on your auto loan, you know it’s time to take action.

Avoid rolling your old loan balance into a new car loan. McClary warns against using special financing offers that claim to “pay off” your old loan when you buy a new car. Here’s what really happens: your old loan balance rolls into your new loan, creating an even bigger pile of debt.

Refinance at a lower interest rate. You may be able to refinance the original auto loan, which can reduce your rate. Use our simple tool to compare auto loan rates if you’re looking to refinance.

Keep it mind it can be difficult to qualify for a good refinancing offer if your credit is poor to begin with, which is the case with many subprime borrowers. There are some simple steps you can take to improve your credit over time. Chris Kukla, senior vice president at the Center for Responsible Lending, suggests working with a local credit union or community bank, which might have better refinancing options for shoppers with a troubled credit past.

“Some consumers assume they won’t get a loan because of their credit history,” Kukla says. “If you already have a relationship with a bank or credit union, you might discover they are willing to work with you on an auto loan refinance.”

Negotiate your loan terms. If refinancing through a different lender isn’t an option, you can try to renegotiate your loan terms with your current lender. If the lender isn’t willing to budge your interest rate, they may agree to shorten the term of your loan. Paying off your loan in larger chunks over a shorter period of time will help reduce the amount of interest you pay over time.

Sell your car. Sometimes when you’re stuck with a car that is worth less than what you owe on it, you have to cut your losses and sell, McClary says: “Sell the car, pay off the bad auto loan, and buy a less expensive car.” This will, unfortunately, still leave you with a loan balance to pay off. In that case, you can look for ways to earn additional income to help pay down the loan balance faster. Think about raising funds by selling another valuable or asking a friend or family member for a small loan. There are personal loans that can help cover remaining auto loan balance, but they can be difficult to qualify for if your credit is poor.

McClary says you don’t need to completely pay off the bad auto loan to get out of it. It’s really a numbers game: “Sometimes you just need to pay down the loan to the point where you have enough equity to qualify to refinance at a better rate.”

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Miranda Marquit
Miranda Marquit |

Miranda Marquit is a writer at MagnifyMoney. You can email Miranda here

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