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6 Tools for Stock Trading and Analysis

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It may not have not been reviewed, commissioned or otherwise endorsed by any of our network partners or the Investment company.

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Stock trading generally is considered a short-term approach to investing. Successful stock traders can make outsize profits, but there is a lot of risk involved as well. Taking advantage of tools designed to help traders analyze potential investments can minimize risk and provide an edge in earning profits.

Here is a look at six common types of trading and analysis tools that a shrewd investor may want at their disposal to guide them in their trading decisions.

Analytical tools for stock trading

These tools can help you analyze markets, trends and further data to help you make stock trading decisions.

1. Research sites

Traders often turn to research to help them make buying and selling decisions. Research encompasses the analysis of data, whether quantitative or qualitative, to help drive informed decisions about future events in the markets.

There are a number of online resources that provide detailed research and analysis for an audience of traders and investors:

  • Morningstar is full of analytical tools for stocks, mutual funds and exchange-traded funds (ETFs). For individual stocks, the site offers a number of tools and analysis, including analyst reports, robust charting tools, a rating system for stocks and the calculation of a stock’s moat (which is a ranking of the company’s competitive advantage over rivals or the lack thereof). Some of the tools are free, while others might come as part of Morningstar’s subscription service. Beyond its main site, the company offers a wide array of products and tools that are geared toward both financial professionals and individual investors and go well beyond individual stock research.
  • Zacks Investment Research offers a number of tools for individual stock analysis, including a robust screening tool that allows investors to screen for stocks meeting a variety of criteria. Zacks also includes research from in-house analysts, proprietary rankings for stocks and a full set of earnings releases and screens. Many of the tools from Zacks are free to use, although some, such as its earnings surprise prediction (ESP) filter, require a premium subscription.
  • Many brokerage firms also offer robust analytical tools to research stocks. Schwab, Fidelity, TD Ameritrade and Vanguard all offer research and data on a variety of stocks at various levels. Some of the tools might require you to have an account or at least register on the site.

2. Charting

Charting is a way to look at trends in a stock’s price over periods of time. That might be as short as a day or a few weeks for active traders or as long as years or decades. The best charts allow investors to compare the price of a stock over time against market indexes like the S&P 500, the Dow Jones Industrial Average and others.

Additionally, many of the better charting tools allow investors to track stocks against moving averages of their prices over periods of time. The 50-day and 200-day moving averages are popular technical analysis tools. If the price of a stock is trending above or below its moving average, it might be a buy or sell signal for traders.

Many brokers offer charting tools to customers to help them analyze and track movements in securities.

A number of financial sites offer free charting as well:

  • Yahoo Finance is known for its robust charts. Additionally, the site allows investors to link to their portfolios at brokers and custodians to access the other tools on the site, which include screening tools for stocks and other types of investments. It also offers a robust news feed from a variety of financial sites on a range of market-moving topics.
  • BigCharts is a site owned by MarketWatch that offers a variety of charting tools with filters for a large number of indicators, styles and performance comparisons to indexes.
  • Finviz offers charting in a number of styles, such as line, candlestick and OHLC. Users that subscribe to the Elite product can gain access to real-time pricing on intraday, daily, weekly and monthly time frames. Those with Elite also can use advanced charting features that include overlays, drawing tools and performance comparison charts.

Trading tools

These services will come in handy when it’s time to actually make your stock trades.

3. Margin loans

Margin loans allow you to borrow against securities already owned in your portfolio. The money can be used for any number of purposes, including to finance the purchase of additional stocks for your portfolio, whether those stocks are part of a short-term trading strategy or a longer-term holding.

Margin loans offer flexibility, but the interest rates on margin loans often are higher than the interest rates on other personal loans. You certainly would not want to have a margin loan outstanding for a long period of time.

There are risks to borrowing against your portfolio. If the value of the securities that were borrowed against decline in value, you could be forced to liquidate some holdings to cover a margin call on your outstanding loan.

4. Advanced order types

You probably will want to choose a broker that offers a variety of order types from which to execute trades. All brokers generally offer the basics, such as a market order, a stop order, a stop-limit order and other order types.

Depending on your holding period and trading objectives, you might need more advanced orders, such as:

  • Trailing stop orders that move up in price when the stock gains in value
  • Conditional orders that allow you to set a condition that triggers a sale of the stock (conditions can be based upon the movement of the stock held, options or market benchmarks)
  • Short selling, which allows traders to profit on downward moves in a stock

5. Robust trading platforms

Using a robust trading platform — like those offered by a number of major brokerage firms, such as TD Ameritrade and Fidelity — can pay off for investors. These platforms go beyond the basics of allowing traders to buy and sell shares; they offer tools that allow traders to take it to the next level in terms of analysis and the ease of making trades.

TD Ameritrade offers four versions of its online trading platform, including:

  • Its basic online platform
  • Thinkorswim, which is its most advanced platform geared toward “serious traders,” according to the TD Ameritrade site
  • Two versions of its trading platform via mobile

TD Ameritrade offers trading accessibility on a 24/5 basis, meaning trades can be placed on a 24-hour basis Monday through Friday. It also offers 60 days of commission-free trades and a bonus of up to $600 for new accounts that meet certain conditions as of the date of publishing.

Fidelity offers a platform that touts a number of features as well, including:

  • Streaming market data
  • Advanced trading tools and order types
  • Portfolio management tools

Whether you use TD Ameritrade, Fidelity or another brokerage, it is best to look for a trading platform that meets your needs as a trader. Whether this entails research, the ability to simulate trades, advanced order types or other tools, choose the broker that comes closest to offering what you need as a trader.

6. Trading simulators

Trading simulation tools allow investors to review the impact of trades or other investment decisions in a virtual environment before executing the trades with real money.

There are a number of stock simulators available, including several at major financial sites:

Several major brokerage firms also offer simulation tools that traders can use to test their ideas, including:

For brokerage firms, offering a robust trade simulation tool serves a dual purpose. It’s a way to help educate traders, and it offers a means for the broker to show off its capabilities. For investors looking for a more personalized experience, a dedicated financial advisor may be the solution to help achieve your investing goals and reach financial freedom.


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4 Strategies to Reduce Your Taxes From Day Trading

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It may not have not been reviewed, commissioned or otherwise endorsed by any of our network partners or the Investment company.

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Day trading — the buying and selling of a security within a single trading day — can be a profitable activity for experienced and skilled investors. However, this type of frequent trading also can trigger tax and accounting headaches that the average investor may find overwhelming.

In this article, we’ll take a look at some of the key tax issues associated with day trading, and whether the Internal Revenue Service (IRS) might classify you as a trader for tax purposes. Like any investing activity, it makes sense to understand these issues to maximize any tax benefits that may be available.

4 tax reduction strategies for traders

Whether you are classified as a trader or an investor matters from a tax standpoint. Traders are in a position to reduce their taxes through a number of special benefits that can be maximized.

1. Use the mark-to-market accounting method

Mark-to-market accounting is a method in which you report gains and losses as if you sold everything on the last day of the year, which means you mark the securities held to the end-of-the-year market value. This is done at the end of each tax year.

The benefit is that net trading losses can be deducted against other income on an unlimited basis. You are not limited to $3,000 in excess of capital gains, unlike taxpayers who are classified as investors. Mark-to-market traders begin the new tax year with a “clean slate” — in other words, all positions have zero unrealized net gains or losses. On the flip side, traders can’t use the preferable capital gains tax rates for long-term capital gains.

2. Take advantage of being exempt from wash sale rules

Wash sale rules apply to investors who engage in the practice of tax loss harvesting, where investors sell securities to realize a loss but are prohibited from buying that same (or a similar) security within 30 days of the sale. Traders can realize losses and then immediately turn around and buy the same security they had sold.

3. Deduct the expenses involved in your trading activities

Trading is classified as a business by the IRS — meaning those who participate, much like in any business, can deduct their operating costs.

For a trader, these might include:

  • A home office deduction for your business activities, subject to IRS rules
  • The cost of your computers, digital devices and internet access
  • Subscriptions to trading services or journals
  • Office supplies
  • Costs related to outside accounting and tax services
  • Interest expenses for margin loans and other debt used in trading activities

4. Reap the benefits of not being subject to the self-employment tax

Unlike other Schedule C taxpayers, the profits from trading are not subject to the self-employment tax — a tax consisting of Social Security tax and Medicare tax for those who work for themselves — which is a positive. The flip side is that traders cannot use this income as the basis for making business retirement plan contributions.

How traders are defined

Being a day trader alone does not qualify you as having the tax status of a trader. The IRS considers you a trader if you meet several criteria it has established:

  • You look to profit from the daily price movements of securities versus from dividends, interest or capital appreciation from the securities.
  • Your activity is considered substantial in its eyes.
  • You must engage in this trading activity on a continuous and regular basis.

In addition, the IRS will look at the following factors to determine if your trading activity is a securities trading business:

  • Your typical holding period for the securities you buy and sell
  • The frequency and dollar amount of your trades over the course of the year
  • The extent to which you pursue this trading activity to produce income and a livelihood for yourself
  • The amount of time you devote to your trading activity

While there are no definitive rules, examples of some criteria suggested by trader tax expert GreenTraderTax for qualifying as a trader include:

  • You maintain sufficient trading volume — at least four trades per day, 15 per week or 60 per month.
  • You earn a substantial amount of your income from trading.
  • You trade on a regular and recurring basis.
  • You execute a trade on at least 75% of available trading days during the year.
  • Your average holding period for securities is less than 31 days.
  • You demonstrate the intention to run a trading business as your principal means of earning a living.
  • You are set up as a business.

If your trading activities don’t meet the criteria outlined above, you likely are considered an investor in the eyes of the IRS.

Per the IRS definition, investors typically buy and sell securities with the expectation of earning income from dividends, interest or capital appreciation on those securities. Being a day trader alone does not qualify you as having the tax status of a trader.

Differences in tax treatment for traders and investors

As an investor, you cannot deduct the expenses incurred in your trading and investing activities except within the confines of what any individual investor can do.

This means:

  • Short-term gains are taxed as ordinary income.
  • Long-term gains (defined as securities held for at least a year) are taxed at the more preferential long-term capital gains rates. This can be advantageous for those who hold securities for a sufficient time, but it is not a benefit for frequent traders with generally short holding periods.
  • You no longer can deduct miscellaneous expenses. Prior to the tax reform enacted at the end of 2017, if you itemized, you were able to deduct your interest expense if you used margin debt to purchase securities, subject to the limitations in the rules.

Additionally, you will need to track the cost basis of all securities purchased in order to properly account for gains and losses when filing your taxes. If you are a day trader and trade frequently, then this requirement can be a real burden.

By contrast, if you are a trader, your trading activities are classified as a business. You can account for these as a sole proprietor, an S-corp, an LLC or another type of business entity that may be appropriate for your situation.


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What Does a Federal Reserve Rate Hike Mean for My Investments?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It may not have not been reviewed, commissioned or otherwise endorsed by any of our network partners or the Investment company.

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The federal funds rate is the interest rate banks charge one another for overnight loans, and it is determined by the Federal Reserve’s Federal Open Market Committee (FOMC). A Fed rate hike increases the cost of funds for banks — a cost they ultimately will pass on to their customers, both individuals and businesses.

A Fed rate hike invariably leads to an increase in the prime lending rate, which often leads to an increase in interest rates for both consumers and businesses. Beyond the obvious impact on borrowers and credit card holders, higher borrowing costs can ripple through the rest of the economy, including to your investments.

What a Fed rate hike could mean for your investments

Rising interest rates impact most areas of the economy — including your investments. Here’s what to look out for.

Stocks and bonds

Bonds move inversely with interest rates. When rates rise, all things being equal, the price of existing bonds will decrease. Those investing in individual bonds could see the price go down. If the bond is held until maturity, investors will receive the full value of the bond. If they need to sell the bond prior to maturity, they may receive a price that’s lower than it would be if held until maturity.

Bond mutual funds and exchange-traded funds (ETFs) are impacted in a similar way but with a key difference. Since they are portfolios of bonds, the funds themselves never mature. An interest rate hike could reduce the value of the bonds held in the funds.

The impact on stocks, stock mutual funds and ETFs is a bit harder to gauge. Rising interest rates can lead to higher borrowing costs for many companies, which could impact the profits of companies who rely heavily on debt financing.

Rising rates also could hurt the revenue of companies whose business is dependent upon customers’ ability to borrow money, such as automobile manufacturers or homebuilders. Depending on how much stock of these companies you own or how prominently they are represented in ETFs and mutual funds you own, the impact could be adverse.

Real estate

If interest rates rise, the residential real estate market also could be impacted. Higher mortgage rates impact buyers’ ability to borrow. This could serve to decrease the demand for housing, driving down prices. Besides prospective homeowners, this could impact those who invest in income-producing properties.

Similarly, the price of commercial real estate could see a decline if interest rates drive up the cost of loans to purchase commercial property. If financing is harder to get or the cost of borrowing is too high for some buyers, it could serve to drive real estate values down.

Real estate investment trusts (REITs), which own or finance various types of income-producing properties, also may suffer in value in a period of rising interest rates. There are many publicly traded REITs, which are essentially stocks, and many mutual funds and ETFs invest in REITs.

Rates for savers

Savers who use vehicles like CDs, money market mutual funds and other types of saving accounts could see an increase in the interest rate they earn when investing in these types of vehicles and accounts.

This provides a better return on these relatively low-risk savings vehicles. That could give a much-needed boost to investors who keep funds in these types of accounts, whether as a parking place for emergency cash or as a safe spot to stash a portion of their retirement savings.

Retirement savings

Money held in your IRA and 401(k) accounts likely would not be impacted by rising rates, simply because of the structure of the accounts. However, as mentioned above, the investments held in these accounts could be impacted, potentially reducing the value of your retirement savings.

Recent changes in the fed funds rate

In December 2020, the federal funds rate range stands at 0% – 0.25%, the result of two massive Fed rate cuts in March in response to the coronavirus pandemic. To support the economy, the Fed has put the federal funds rate on its backburner and turned to its other tools like issuing business loans and buying up securities.

The last time the Fed raised the federal funds rate was back in December 2018, leaving the rate range at a high of 2% to 2.25%. The rate rose gradually from near zero in the years directly following the financial crisis of 2007, when the Fed kept rates low to help the economy recover.

Where are interest rates headed in 2021?

We will likely see a similar pattern as the economy rides the waves of the pandemic. In the Fed’s September Summary of Economic Projections (SEP), members indicated they expect the next Fed rate hike to come in 2022 or 2023. Consumer interest rates on deposit accounts and loans will likely continue the downward trend in 2021 that they set in 2020.


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