Hi guys. I’m relatively new to stock trading, and I had a few questions that I’m hoping somebody will be able to answer. Tried to search the forums to see if they’ve already been answered, but I either couldn’t find anything or I still was unclear on the subject matter.
In any case, here’s my first question. Why are “sell short” and “buy to cover” their own separate options when you trade stocks? I think I understand the basic concepts behind each term, but I don’t understand why you wouldn’t just use the standard “sell” option to sell high and the standard “buy” option to buy it back when it falls later. Is there something flawed with my logic here?
My second question is more of a scenario. I’m hearing a lot of things about having to have at least $2000 equity if you have a margin account, but I’ve also heard that you can still have less than that, but you just won’t be able to borrow funds on margin. Assuming that the latter is true, would I be able to do the following?
-Open up a new margin account and deposit $1000.
-Buy $800 worth of a stock on Tuesday
-Sell all $800 of that same stock on the next day (Wednesday)
-Buy $900 of another stock on that same day (Wednesday)
-Sell all $900 of Stock B on the day after (Thursday)
Would I be able to even do this without being tagged as a day-trader?
My final question involves tax on stocks. I’m a 20-year-old college student who makes less than $10,000 per year with no dependents. With this in mind, let’s say I buy five shares of a stock that is at $10. The next day, I sell all five shares for $20. If we factor in broker commission fees (let’s say $5 each way), I’d be left with $40 (100 – 50 – 10). First of all, are taxes and the broker fees the only fees/taxes/charges that I need to worry about here? Secondly, how much of the $40 that I have left would I expect to be taxed for?
Whew. I know I have a lot of stuff here, and most of it probably sounds very dumb to most of you guys, but I would really appreciate any insight that anyone would have to these things. Thanks again.
In any case, here’s my first question. Why are “sell short” and “buy to cover” their own separate options when you trade stocks? I think I understand the basic concepts behind each term, but I don’t understand why you wouldn’t just use the standard “sell” option to sell high and the standard “buy” option to buy it back when it falls later. Is there something flawed with my logic here?
My second question is more of a scenario. I’m hearing a lot of things about having to have at least $2000 equity if you have a margin account, but I’ve also heard that you can still have less than that, but you just won’t be able to borrow funds on margin. Assuming that the latter is true, would I be able to do the following?
-Open up a new margin account and deposit $1000.
-Buy $800 worth of a stock on Tuesday
-Sell all $800 of that same stock on the next day (Wednesday)
-Buy $900 of another stock on that same day (Wednesday)
-Sell all $900 of Stock B on the day after (Thursday)
Would I be able to even do this without being tagged as a day-trader?
My final question involves tax on stocks. I’m a 20-year-old college student who makes less than $10,000 per year with no dependents. With this in mind, let’s say I buy five shares of a stock that is at $10. The next day, I sell all five shares for $20. If we factor in broker commission fees (let’s say $5 each way), I’d be left with $40 (100 – 50 – 10). First of all, are taxes and the broker fees the only fees/taxes/charges that I need to worry about here? Secondly, how much of the $40 that I have left would I expect to be taxed for?
Whew. I know I have a lot of stuff here, and most of it probably sounds very dumb to most of you guys, but I would really appreciate any insight that anyone would have to these things. Thanks again.
