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What Are the Long-term Prospects for the Airline Industry?

Airline stocks suffered major declines after their initial rally following the Covid-19 struggles. The long-term prospects of investing in the industry are uncertain.    

What Are the Long-term Prospects for the Airline Industry? 

You need a deep understanding of the market situation to make professional stock trading moves. Thus, it is important to study the journey taken by various stocks and industries.

The airline sector, which was among the industries worst affected by Covid-19, has now seen a massive rally. Most people are expecting the rally to continue and are looking to invest. Like some retail investors, who believe air travel demand is going to come back in a massive way. While others aren’t as optimistic believing that the rally for the airline sector could end soon.

Airline Stocks Suffer After Big Rallies  

On Tuesday, June 9, many of the stocks got hit hard despite their previous stellar performances. With airline stocks being among those that had significant declines, many industry observers believe that air carriers could struggle to make any progress. 

The greatest losses were experienced by American Airlines Group ($AAL) at 9%, Delta Air Lines ($DAL), and United Airlines Holdings ($UAL) at 8% and Southwest Airlines ($LUV) at 6%. Much smaller carriers such as Spirit Airlines ($SAVE) suffered a drop of 11%. But the losses were felt for the whole industry, with declines in the region of 7% to 9%.

Shares Could Rebound  

Putting this into perspective, Tuesday’s declines seem significant considering the massive losses that airline stocks have had lately.  Despite the decline, there is an increasing number of people traveling by air. As a result, airline companies are able to expand their schedules and provide more flights. There are also indications that future demand would rise. So, Airline Stockholders believe that shares will rebound in the long run.

Long-term Prospects Are Uncertain 

Still, Tuesday’s declines were a reality check for airlines. Though there are more and more travelers, it still isn’t going to get as busy as things were before Covid-19. And it could stay that way for quite some time, according to analysts who feel that traffic levels would take years to gain back the ground lost.

Even after traffic returns to normal, it is hard to figure out how the air travel situation will be. Motley Fool analyst Dan Caplinger,  thinks that nobody will travel jam-packed in a plane anymore for fear of any new infections striking. That would affect the profit margins of airline carriers. If so, it would be way below how things were before Covid-19. 

Airlines Could Continue Cost Cutting 

The only way airlines would then be able to compensate for it is by raising fares. How will the traveling public take the fare hike? with people beginning to go back to their jobs and more. So, Caplinger argues they could not be prepared to handle the higher rates. The airlines would have to continue the cost-cutting measures they have adopted. That could result in significant layoffs.

Caplinger expects major turbulence in the coming months. For now, the massive rallies could be over. But things could be better than expected in the long run. For now, airline stocks need to get back to normal and adapt to the changing conditions. That would determine their feasibility as long-term investments.   

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Day Trading Facts to Know for Long Term Success

Day trading is one of the most popular trading styles. Here are some top facts about day trading and how to get started.

Day Trading Facts to Know for Long Term Success

Stock market trading can be profitable but also carries certain risks. People who are new to trading may have an assumption that they can earn a lot of money by trading in stocks. Furthermore, day trading has earned an inordinate amount of hype over the past few years.

Technological developments like, mobile connections, high-speed broadband, and online trading houses have made it easier for an average individual investor to start trading. Many people are trying their luck with day trading. They trade throughout the day to see if they can profit from volatility and market swings. But, before beginning to trade stocks, it is important to understand what day trading is, and what the best strategies are to minimize risks and be in the game for the long haul.

Understanding Day Trading

Investopedia defines day trading as buying and selling financial instruments within a single trading day. Meaning, closing out positions at the end of each day and starting out afresh the next day. This can occur in any market place but it is quite common in the foreign exchange (forex) market and the stock market.

Day traders buy and sell many stocks, multiple times within the same day to take advantage of small market movements. An important aspect to recognize is that initial profits in day trading will often be followed by losses. In fact, it’s easy to get enthralled by the idea of investing in stocks and converting them into quick profits. But it is very important to understand that day trading may not make a person rich initially. According to the US Securities and Exchange Commission (SEC), day traders typically experience financial losses in their early trading months.

Starting Day Trading – What You Need to Know

Before you begin to day trade on any market, there are several factors to consider. Compared to the typical buy and hold strategy, the single-day trading practice requires putting in a lot more time and effort. In investing, the trader holds the stock for a longer period of time. Hence, daily movements have very little impact on the overall picture.

Investors generally purchase a stock that they regard as stable and hold it for a longer period (maybe years) to find out whether those companies are making favorable returns. When the returns are sufficiently favorable for their stock prices to increase, investors trade them to make a profit. But, for day trading, the prime focus will be on related factors that can affect daily market behavior.

Here are some prime factors that affect online stock trading:

Liquidity – The liquidity factor in a market relates to how easily and quickly positions can be entered and exited. For day traders, liquidity is an important factor as chances are that they will be engaged in multiple trades within a single day.

Volatility – Volatility of a security means how rapidly the price fluctuates. If there is high volatility expected during initial hours, the movements can create a lot of openings for short term profits.

Trading volume – Trading volume is a measurement of how many times the stock has been traded within a given period of time. For day traders, this is also known as ‘average daily trading volume.’ High volume trading is a sign that the stock is good and more people prefer to own these stocks.

Incorporate an Explicit Strategy

Many traders believe that a complicated strategy is key to succeed in day trading. But, following a straightforward approach that focuses on the basics of simple day trading can yield good results. Creating a business strategy, being diligent, focused, and disciplined are vital to day trading.  

Before starting to trade, it is important to develop the outlook of the day trader and take note of the following aspects:

Doing Basic Research – To succeed as a day trader, stay updated with the latest happenings that have an impact on the stock market. Such as federal interest rate, economic outlook, and other financial indicators. Maintain a list of stocks that you plan to trade and perform comprehensive research on those firms before starting to trade.

Lastly, have a clear understanding of the SEC rules that are applicable for day traders. To qualify as a pattern day trader, a minimum of $25,000 is required at all times in your trading account. You can only trade in margin accounts if you make four or more day trades in 5 market days.

Learn Trading Jargon – If you are new to day trading, chances are that you will encounter numerous trading terms such as – candlestick, reversal, breakout, false breakout, short trade, trend line, tick chart, price action, impulse wave, support areas and more. Learn some of the common trading terminologies before you start trading.

Create a Trading Plan and Budget – Before investing a single dollar, a trader needs to have some basic idea on how they will make a profit and this can be analyzed by creating a trading plan. A trading plan will include details about what, when, and how you will enter a trade. Additional rules can be added over time as required. Also, traders need to set aside the amount of capital they plan to invest in each trade. For successful traders, this should be no more than 1 to 2 percent of their overall trading account.

Create a Day Trading Routine – Create a specific routine for the trading day. This includes starting and quitting trading at the same time each day, checking for scheduled economic data releases that may impact the market, and reviewing all trading done. Have a checklist to verify that each trade done aligns with the specific trading plan.

Start Trading with a Few Stocks– Beginners may get confused with the many trading strategies available. So, start the trading process with one or two stocks, find out how they perform, and by experimenting with different strategies, a trader’s success rate may increase. Also, traders must focus on one market or even one specific instrument and become a master in it. This in turn will help produce more consistent results.

Broker Account – To trade stocks, one must have a broker account. When choosing a brokerage firm, it is important to consider certain key aspects like, the reputation of the firm, services offered, costs and fees (associated with the account), and whether the account allows for fast market access and trade execution on days that you require.

Recognize Stock Patterns – Generally, the trade patterns are stronger during the starting hours and before the closing bell. These busy times in the market typically create price volatility, which could increase your profits. However, keep a close watch for the first few days to identify trading trends. Until you understand the trading patterns, it’s best to choose to trade at midday when the activity slows down. There is no single best trading strategy for stocks, so analyzing profitable patterns can help you identify lucrative day trading opportunities.

Utilize a Stop Loss Order – Reduce losses by placing a stop-loss order that allows you to get out of a trade if the price of the stock does not move in the expected direction. It is a specific point wherein the trader admits that they are wrong in the trading pattern. Implementing a stop-loss also allows a trader to evaluate their position size accurately and the number of shares they will take on a single trade.

Choosing the right stock to buy and When to Buy – Day traders normally deal with currencies, stocks futures, and options. Choose the right type of asset by evaluating factors like – volatility, liquidity, and trading volume. To maximize profit as a day trader, it is important to identify stocks that are moving. Once you have analyzed a potential stock and determined that it is a good buy, you need to know when to buy the stock. Moreover, analyze the time-sensitive conditions that apply to your potential trades.

Deciding When to Sell – Day traders use different day trading strategies like scalping, momentum, profit targeting, selling, pivot points, etc. to know when to sell for optimal profit. Regarded as one of the most popular strategies, scalping involves selling more or less immediately after a trade becomes profitable. Momentum involves trading on news releases or finding strong trending moves. Daily pivots involve profiting from a stock’s daily volatility. Profit targeting or selling strategy is used when the profit on a transaction meets a predetermined threshold. In simple terms, traders should sell an asset as soon as they notice its value is decreasing.

All in all, as there are many factors that make the process challenging; day-trading requires a whole lot of practice, discipline, and technical know-how. Keep in mind that in online trading, you should never ever get carried away by the sheer thrill of investing more capital than you have. Make sure to begin trading only when you reach a stable financial position.

With TradeZero, you have the right online stock broker or dealer to assist you in your online stock trading journey in an efficient manner. Give us a call at 954-944-3885 and get started!

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Why You Need to Learn About the Delta Hedging Strategy

Traders who want to be more professional and make winning moves may need complex strategies such as delta hedging. 

Why You Need to Learn About the Delta Hedging Strategy

Once you have enhanced your experience of stock trading with direct access trading platforms, you may want to look for more advanced trading strategies to better manage risks and maximize earning opportunities. One of these advanced strategies is delta hedging.  It may be complicated to get it right, but if you’re looking for advanced strategies, you need to consider this.     

What Is Delta Hedging?

Delta hedging is a strategy in trading by which you arrange an option play. Which helps in decreasing or eliminating the potential directional risk exposure of an underlying stock, or any option contract you hold. 

Stocks and options generally have directional exposure to price moves. This exposure, called delta, is measured by how much a trading position earns or loses when the stock undergoes a $1 move. For example, if a call option makes a 50-cent movement for every $1 move of the underlying stock, it has a .50 delta. 

Options are used to balance the risk to another option holding or a whole portfolio. The investor aims to attain a state of delta neutrality without any directional bias. A long position without a hedge has a 1.00 delta while a short position without a hedge has a -1.00 delta. 

Pros as Well as Cons in Delta Hedging 

For traders, delta hedging can help isolate any changes in volatility. But a major drawback is that you would need to keep watching the positions involved and adjust them. And since delta hedges get added and removed with the underlying changes in price, the trader incurs further trading costs. 

Delta hedging is complicated, and it’s usually carried out by investment banks and institutional traders. But even individual traders can carry out a simple version of it. This involves buying or selling options before buying; or selling stock or ETF of an equivalent amount. 

But whatever delta hedging practice are used, the hedge needs to be constantly rebalanced since you are looking to neutralize the price of an option in relation to the price of an asset.

A Complex Delta Hedging Strategy

A more complex strategy involves trading volatility with a delta neutral trading strategy. Delta neutrality refers to a portfolio strategy where multiple positions are utilized along with positive and negative deltas to ensure that the overall delta of the concerned assets are zero. 

NewTraderU describes positive and negative delta positions. The positive delta positions are long stock shares, long call options, short put options, buying call spreads and selling put spreads. The negative delta positions are selling stock short shares, long put options, short call options, selling call spreads and buying put spreads.

Why You May Need Delta Hedging

Due to the complexity of the process, Delta hedging is expensive. But, it can be of great benefit for traders anticipating a strong move in the stock they hold, but are worried about the risk of over hedging; if the expected move doesn’t quite turn out that way. 

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Stock Market Seems Bullish but Negative Influences Lurk

While the Covid-19 pandemic battered the American economy, the major indexes, the stock market, the small-caps and midcaps have posted impressive recoveries.

Stock Market Seems Bullish but Negative Influences Lurk

Studying the mood of the market is essential to make informed trading decisions. While
the coronavirus lockdown of the economy plunged stocks and indexes to all-time lows,
the rally from that point for the major indexes has been impressive. The market is
turning bullish, and if you have any doubts about this, analysts are quick to point out

Why the Situation Really Seems Bullish

Bullish investors are getting a lot of ammunition these days, but it seems the market is
even stronger than what was mentioned by MarketWatch’s Mark Hulbert. There seems
to be truth in that statement concerning 94% of stocks making up the S&P 500 trading
higher than their 50-day moving average. With 20% control of the total market cap of
the S&P 500 index, these American stocks (Microsoft ($MSFT), Apple ($AAPL),
Amazon ($AMZN), Alphabet ($GOOGL) and Facebook ($FB)) in terms of market
capitalization, have been firing on all cylinders. This concentration is the highest since 1980. Moreover, before the burst of the internet bubble, these stocks only made up 18%.

The Impressive Performance of Midcaps and Small-caps

The indication of the extent of stocks’ participation in the bull market comes from how
midcap and small-cap stocks perform. These stocks have indeed overtaken the large
caps and risen from there lows of March 23. The Russell 2000 index, which is made up
of small-cap and midcap stocks, has returned 43.8% from March 23. While the S&P 500
only managed 36.1% in that period.

Moreover, MarketWatch quoted FactSet data stating that 94% of the S&P 500 stocks
trade higher than their moving average of 50 days. Market Extremes’ president Hayes

Martin, reported that 90% of stocks that were listed on the NYSE trade higher than their
respective 20-day exponential moving averages.

Watching out for Divergences

These indications are considered bullish because the major turning points in the market
came with major market divergences. The high of the market in late September 2018
happened when the S&P 500 was heading for a nearly 20% drop. Though the market
was approaching a new high, less than 10% of the S&P 500 stocks traded higher than
their respective 50-day moving averages. These factors caused Martin to predict a
correction of 8% to 13%.

So, Martin reckons bulls should watch out for any divergences materializing pretty soon.
Things could deteriorate if they materialize. For the moment though, and for the near-
term, the prospects are promising and the strength of the market is pretty impressive.

Consumer Sentiment Recovering

One factor that has been depressing is the drop-in consumer sentiment. But even that
experienced a growth in May, according to a University of Michigan study. May saw
consumer sentiment rise from 71.8 in April to 72.3. In February, the consumer
sentiment reading was 101; which was around the time that the Covid-19 pandemic
started spreading.

Worsening US – China Tensions

Meanwhile, the escalating US – China tensions are casting a shadow on the market.
Trump escalated the tensions after he announced his intention to terminate the
country’s relationship with the WHO (World Health Organization), an organization he
accuses of subjecting itself to China. Donald also mentioned increasing his scrutiny on
Chinese companies on the US stock exchanges.

So, there are disturbances that could negatively impact the stock market. But judging by
the impressive rally of the major indexes and the small-cap and midcap stocks, the
situation seems to be bullish for the near future. But it is important to watch out for the
unfolding international political situation; and also, how the economy fares following
the reopening of business operations in the states.

While Covid-19, the major indexes, small-caps and the midcaps continue to affect the
American economy, get started in stock trading. Use zero commission trading offered
by reputable online broker dealers.

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Chinese Stocks

How the New Delisting Bill Could Impact Chinese Stocks

The new delisting bill could be critical for many high profile and popular Chinese stocks.
Investors need to watch out for their moves.

The US Senate passed a crucial bill on Wednesday, May 20, that could have implications for the
relationship between the US and China. This bill will also have an impact on the stock market;
here’s how. Fox Business reports that the new bill, called the Holding Foreign Companies
Accountable Act (HFCAA), removes “rogue” Chinese companies from the US exchanges.

The Reason Behind the Legislation

The main reason behind the legislation is the concern that Chinese companies listed on the US stock exchanges are not subject to those standards of accounting and investor protection rules that US companies have to follow.

As a result, retail investors are faced with a greater risk of fraud. According to the bill, if the Public Accounting Oversight Board isn’t provided access to the books of any foreign issuer of stocks for 3 years, the Securities and Exchange Commission will prohibit the trading of those shares on the US exchanges. All that’s needed now is the approval by the House of Representatives after which the President will sign the bill.

Now what do investors need to keep in mind? Well, there are some stocks that would be directly affected by this. In fact, 165 Chinese companies (of which are quite popular with investors) have their stocks listed on the American stock exchanges, and all these could be adversely affected by this legislation.

High Profile Chinese Stocks that Could Be Affected

Among these are search engine giant Baidu ($BIDU), cloud computing giant Alibaba ($BABA), e-commerce platform provider ($JD), and social media and video game company Tencent ($TCEHY).

One Chinese company that already has its stock hit is Luckin Coffee ($LK). NASDAQ already sent the beverage chain a delisting notice after its COO was found to have fabricated sales worth $310 million in 2019. Debuting at $17 per share on NASDAQ in May 2019, the stock soared to $50.02 in January. The company was valued at $12.02 billion. On Wednesday, its value dropped to less than $700 million.

Delisting from NASDAQ

Baidu is already thinking of delisting from NASDAQ. It plans to list on some stock exchange located closer to China since it believes its stock isn’t given the deserved value in US markets.
Will other Chinese companies follow suit? That could happen, or a situation could arise when these companies could be blocked from trading in the US. Or only be allowed to trade on the OTC markets instead of the top exchanges. New Chinese companies could also be prevented from listing on the US stock markets.

If you are using an online stock broker or one of the commission-free trading brokers you need to be vigilant when dealing Chinese stocks and how the Holding Foreign Companies Accountable Act (HFCAA) will effect their listing in the US stock exchange.

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Stock Market Rally

Can You Count on the Stock Market Keeping Its Rally Going? 

Investors always look for the light at the end of the tunnel. It’s no different this time, with the lull the months of March and early April have witnessed as a result of Covid-19 coronavirus. While it is essential to look for the next big investing opportunity, even when there seems to be none around, you also need to be careful you don’t jump the gun. 

Since March, the Market Is on a Roll

After the coronavirus pandemic, the market did experience flashes of growth despite the overall bearish volatility. But since March 23, the S&P 500 has grown around 25%. There has been a continuous debate about how sustainable these gains can be, as a result of the Covid-19 fallout. Even the Nasdaq Composite is in the year-to-date (YTD) lead. Is this an indication that the bad times are past?

Not to Get Drawn Away by the Rebound 

According to prominent strategist Sophie Huynh, as quoted by MarketWatch, investors really shouldn’t be drawing too much from this since the rebound has been mainly surrounding the healthcare, staples and technology sectors. What’s characteristic about these sectors is that they benefit from an environment of low interest rates and kind monetary policies. The current work-from-home situation has also contributed to their growth. These influences aren’t exactly sustainable. 

The upside is limited now, Huynh reckons. She is waiting for a rebound concerning industrial, energy and discretionary stocks. These are stocks that really reflect economic growth recovery more than the other stocks. A total “risk off” is still some way off, she reckons. Currently she doesn’t see any sign of capitulation when compared to 2008 levels, but some of the risk-off has settled in.  

Unemployment Figures Keep Rising

As per reliable data, the total number of individuals who have filed for unemployment in the US is 25 million, when including the 4.4 million who have recently filed for unemployment. The Markit PMI services and manufacturing indexes have dropped, while sales of new homes have also sunk 15%.

Domino’s Pizza, Target and Eli Lilly 

As for the current situation, Domino’s Pizza ($DPZ) missed its same-store sales estimates. The company’s shares slumped 2% in premarket trading on last Thursday after the pizza chain reported first-quarter profit and revenue that rose above expectations but saw reduced U.S same-store sales. However, Target ($TGT) experienced an increase in online sales while pharmaceutical company Eli Lilly ($LLY) also reported earnings growth.  The shares of Eli Lilly rallied 1.5% during premarket trading Thursday – the drug maker had reported better-than-expected first-quarter profit and revenue and also provided an outlook for the full year, which was consistent with the forecasts. They witnessed revenue boost by an estimated $250 million due to increased customer buying patterns related to the COVID–19 pandemic.

Uncertainty for Target?

But there is still uncertainty for Target as it experienced big sales swings. The shift in shopping trends during the pandemic is the primary reason. In fact, the shopping trend shift has been from physical and online stores to only online. That has affected Target’s earnings, making it less profitable. So, the uncertainty continues for the period past the first quarter. 

On April 23, Target released a business update containing valuable information for investors as well as those following the broader retail sector. 

  • Their quarter-to-date comparable sales are up 7% though comps have reduced slightly in stores and digital sales have more than doubled. 
  • For the first few weeks of April, digital sales surged 275% whereas social distancing measures resulted in in-store comparable sales to fall by the mid-teens. 

The company noted that it has increased market share across all of its core merchandise categories. Nevertheless, changes in supply chain to cope with the rise in digital sales and higher wages and bonuses for staff have added up to incremental costs. Investments and expenses and the shift to lower-margin products like food and beverage as well as inventory write-downs for unsold apparel and accessories may lead to the company’s operating margin for the first quarter to fall by more than 5% points from the previous year. This is a threat to its quarterly profit caused by an operating margin of less than 1.4% compared to 6.4% the previous year. However, the company’s CEO reassures that even though the present crisis will put near-term pressure on their profitability, that pressure is far outweighed by doing right by their team and their guests. He said they were confident the actions they were taking at present will drive growth and greater guest affinity over the long term.

The market may give weight to factors such as reduced in-store sales for Target, uncertainty regarding the return of customers in full numbers to their stores, and the shift to lower margin online shopping. This could keep Target’s stock value uncertain, at least for now.

As a stock trader, you can find growth opportunities in the current situation. But it’s still too early to make any investment plan under the notion that we’re out of the woods. We still need more time to find that out for sure. Keep your eyes on the industrial and energy sectors. But with advanced direct access trading platforms offered by online broker dealers, you can easily get started in stock trading.        

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How Are Stocks Categorized and What Kind of Stocks to Invest In?

While there is general excitement for stock trading, you need to figure out the kind of stocks out there and choose them based on your investment goals.

Looking to actively invest in the stock market? There is much greater excitement surrounding the stock market, but before you sign up with an experienced online stock trading brokerage, here’s a look at the kind of stocks out there and their categorization so you can figure out where you need to invest in. Motley Fool analyst Dan Caplinger gives his insight.

Kinds of Stock
1.Common Stock

Now when you hear people saying they “invest in stocks” or “trade stocks,” they usually refer to common stock. Common stock basically gives you part ownership — corresponding with the value of the share – in a company. When you buy stock in a company, you’re a shareholder in the company. Shareholders are provided with the right to get a share of the company, proportional to the value of the stock they hold, if the company goes through a dissolution process.

If the company in which you hold shares keeps performing profitably, the value of the stock you hold keeps rising, and if you sell the stock, you make a profit. With common stock, the potential for an upside is great, but it is also risky if the company fails to perform well. In that case the stock value reduces, and you could be in for a loss if you sell your stock. Worse, if the company totally fails without leaving any assets, you could be getting basically nothing.

2.Preferred Stock

To avoid that, people invest in a company’s preferred stock, if the company offers it. Preferred stock gives shareholders of the stock preference in providing a certain amount over the shareholders holding common stock – if the company goes through a dissolution process. If the company pays dividends, preferred shareholders have the right over the common shareholders to receive them. But companies won’t always offer preferred stock, and often they never will. Common share trading therefore has higher volumes.     

3.Dividend Paying and Non-dividend Stocks

We talked about dividends. Stocks are also classified on the basis of whether they pay dividends or not. Dividend stocks pay dividends to shareholders regularly. If you own a dividend stock you’ll be getting monthly payments, which gives you a great source of income. That’s why dividend stocks are quite sought after. Of course, the dividend amount per share can be greater or lesser depending on the company that’s offering it. And the number of shares you hold also determines if the dividend is substantial enough for you.

Companies offering non-dividend stocks don’t pay dividends, so you won’t get the regular income. However, if those stocks keep rising in value over time, they can also be pretty strong investments. It isn’t mandatory for companies to pay dividends for their shareholders, though that trend has been rising now.  

4.Classification Based on Market Capitalization

The other major classification of stocks is on the basis of their market capitalization, their total share worth. Large-cap stocks are those of companies having the greatest market capitalizations. These stocks generally have $10 billion or more in terms of market capitalization. Mid-cap stocks have lesser market capitalization, generally in the region from $2 billion to $10 billion, while small-cap stocks are even smaller, with market capitalization below $2 billion.

While small-cap and mid-cap stocks have tremendous potential for growth, they tend to be riskier. But if growth is what you’re looking for, and are prepared for some kind of risk, you’d go for them. Large-cap stocks are safer options. Since they’ve already reached the large market capitalization stage, their potential for growth is less, but they are safer investments.  

These are general characteristics, though not all stock in each of the categories need to perform in the exact same manner. With direct access trading platforms, you just need to set your investment goals and get started. 

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