What disadvantages do small investors face when investing in the stock market?
When small investors venture into their domestic countries or foreign countries’ stock exchanges, they face some common challenges. The challenges include:
Diversified portfolios
Small investors have limited finances to buy a number of stocks, bills, or bonds that can spread their risk of loss from market changes; he is only restricted to one or two stocks. When the stocks bought fail to perform effectively, the investor is left to suffer some losses.
Administrative Costs
The brokerage firm that an investor trades his stocks with charges some administrative costs, which may be a common figure or pa percentage of stocks held. Secondly, it may also have some commission when the stock has been traded; these costs are a burden to small investors.
High minimums
Some stocks need the buyer to have some minimum amount that he can be able to buy from the stock exchange, the amount set may be a setback to small traders or may limit their capabilities of diversifying their portfolio. When such companies are doing okay, then the small trader’s loss, such opportunities to cash in some finances generated from such companies.
High fees
Some stock brokerage firms charge high trading fees to traders such that selling the stocks may end up hurting the seller; this injures small traders who have no much volume to pay the percentage that is mostly about one to four percent of the shares traded. This leaves the traders with some difficulties as far as trading in the stock exchange is concerned.
When some stock brokerage firms are devising their charging structure, they tend to have high rates for the low number of stocks since their material percentage is small from the amount to be traded, this makes the situation for small traders more complicated (Conrad, 2011).
What advantages are presented to these small investors?
When small traders are investing in domestic or international stock exchanges, they have some benefits, benefits include:
Exposure
Through the exposure, the companies get the chance to have a feel on what is happening in the business world across economies, they get their mind sharpened and reshaped by such trend thus they can plan their way to having great portfolios. When it comes to the time of massive investments, the traders are already natured and can make sound decisions (ArticlesBase.com, 2010)
Make some financial gains
When trading through the stock exchange, there are high chances that the traders’ expenditure will be lower than the gains that he will get from the trading-this is however dependent on how he will make his portfolio. The financial gain can be used to make some investment portfolios.
Information and business news
When trading, most stock brokerage firms take it as their initiative to train their investors on the best ways of planning portfolios as well as how they can manage the little they have. They mostly have wealth generation programs that can be of high benefit to the small trader in question.
When trading in the international stock exchange, small traders learn how to operate their businesses globally as they share financial and otherwise reports as produced by such firms. They are sharpening their business skills that might go a long way in developing their businesses (Hirst, 2007).
References
ArticlesBase.com.(2010). Small investor’s advantages in today’s markets. Web.
Conrad, B. (2011). What Disadvantages Do Small Investors Face When Investing in the Stock Market? Web.
Hirst, W. (2007). The Stock Exchange. New York: Read Books.