How Making Money Trading Stocks Has Become Marginalized for Small Cap Investors

How Making Money Trading Stocks Has Become Marginalized for Small Cap Investors

Making money trading stocks these days involves keeping a watchful eye on forex markets and central bank activities. Well funded currency traders and monetary authorities are in a continuous battle to manipulate global markets and economies. Day traders have been pushed to the sidelines in several markets and instead seek higher returns in forums where they are more effective.

Making Money Trading Stocks Using Option Contracts

One of the more popular ways to continue making money trading stocks over the last decade has been to use call and put options to increase buying power. The leverage created by controlling (rather than owning) shares allowed smaller amounts of capital to reap larger and larger rewards. The problem has become that so many contracts were created (one side of which inevitably ends up worthless) that a number of firms became insolvent, and even more banks and insurance companies would have folded had the United States Government not intervened.

While using options to trade a stock has been lucrative for many small investors, transaction costs have had a habit of eating away a significant portion of the profits from trades. This inefficiency of transactions puts a minimum size of investment made (typically $1000 or more) puts severe limitations on small capital traders trying to maximize their buying power. The equities markets have such limited movement that day traders have been all but squeezed out of the game of making money trading stocks.

Other Alternatives for Low Capital Investors

Two other popular alternatives for poorly capitalized traders are binary options and forex investing. While both of these markets require very little money to start, the forex market truly should be left to the professionals, given its complexity and the extremely high leverage involved. That leaves binary options.

The binary option is a stripped down version of a European option, with some significant differences. The most important difference for people with only a few dollars of capital is that there are no transaction costs associated with taking a position. Given a position is made in fixed dollar terms and can be as small as $100, even the investor with the tiniest amount of cash to trade can make an investment.

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