The Return on Investment (ROI) in stock market trading is the profit you make on the sale of a security or other asset divided by the amount of your investment. ROI in stock market trading is expressed as an annual percentage rate.
Return on investment (ROI) is stock market trading includes all the income you earn on the stock. It also includes any profit that results from selling the stock. If the sale price plus any income is higher than the purchase price, then you have a positive ROI. If the sale price plus any income is lower, then your ROI is negative.
Of course, as a stock market trader, you are always looking not just for a positive but a high ROI. Below are some ways to ensure that you get a high ROI in stock market trading:
Always know what you’re buying
The most important thing to do to ensure a high ROI in stock market trading is to acquire as much information as possible about the company you are planning to invest in. Do some basic analysis to find out if the stock is worth the price or else you will be gambling. You can always ask other people to do the research for you if you don’t have time. Reliable sources are websites of major brokerage houses, finance publications, and mutual-fund companies.
Don’t confuse smart investing with a bull market.
There are many reasons why you could be getting a high ROI in stock market trading. One is you could really be investing smartly. Another is that you could just be lucky enough to be in the right place at the right time and made money with hardly any effort. Sometimes we feel smart when the market is going up, so we’re tempted to trade more frequently and take on riskier positions.
Avoid active trading
It is tempting to trade frequently especially when you’re gaining. This is particularly true with online stock market trading where investing is only a few clicks of the mouse away. But remember that it’s tough to make money by beating the market consistently. It is advisable to employ a buy-and-hold strategy to ensure a high ROI in stock market trading.
Mind the taxes
Frequent trading could also be very costly particularly so with high-income taxes triggered by profits that could reach as high as 40%. To get a high ROI in stock market trading, therefore, it is advisable to buy and hold for a period of at least a year so you would qualify for the lower capital gains rate of 20%.