Equities
Difficulty intermediate
Overview
Equities (stocks) represent ownership in a company. They are the most traded asset class globally.
Stock Types
| Type |
Characteristics |
Risk |
| Common Stock |
Voting rights, residual claim |
Highest |
| Preferred Stock |
Fixed dividend, priority claim |
Medium |
| ADRs |
Foreign stocks on US exchanges |
Currency + equity |
| SPACs |
Blank check companies |
Very high |
Market Capitalization
| Category |
Market Cap |
Characteristics |
| Mega Cap |
> $200B |
Stable, liquid, low growth |
| Large Cap |
$10B - $200B |
Established, moderate growth |
| Mid Cap |
$2B - $10B |
Growth potential, moderate risk |
| Small Cap |
$300M - $2B |
High growth, higher risk |
| Micro Cap |
< $300M |
Very high risk, illiquid |
Trading Equities
Order Types
| Type |
Description |
Best For |
| Market |
Execute immediately |
Liquid stocks |
| Limit |
Execute at price or better |
Always |
| Stop |
Trigger at price |
Stop-loss |
| Stop-Limit |
Limit order triggered by stop |
Protection + price control |
Trading Hours
Pre-Market: 4:00 AM - 9:30 AM ET
Regular: 9:30 AM - 4:00 PM ET
After-Hours: 4:00 PM - 8:00 PM ET
Costs
| Cost Type |
Description |
Typical |
| Commission |
Broker fee |
$0 (most brokers) |
| Spread |
Bid-ask difference |
$0.01 (large cap) |
| Slippage |
Execution price vs. expected |
Varies |
| SEC Fee |
Regulatory fee |
~$0.0000221/share |
| TAF |
Trading activity fee |
~$0.000166/share |
Stock Selection Approaches
Fundamental
Value: Low P/E, P/B, high dividend yield
Growth: High revenue/earnings growth
Quality: High ROE, stable earnings, low debt
Income: High dividend yield, stable payouts
Technical
Trend Following: Moving averages, breakouts
Mean Reversion: RSI, Bollinger Bands
Momentum: Relative strength, price rate of change
Quantitative
Factor Models: Fama-French factors
Machine Learning: Predictive models
Statistical Arbitrage: Pairs trading, multi-leg
Risk Factors
| Risk |
Description |
Mitigation |
| Market Risk |
Overall market moves |
Diversification |
| Company Risk |
Firm-specific issues |
Research |
| Liquidity Risk |
Can't exit position |
Trade liquid names |
| Gap Risk |
Overnight price jumps |
Size appropriately |
| Short Squeeze |
Short covering drives price up |
Avoid heavily shorted |
Practical Guidelines
- Know Your Timeframe — Match strategy to holding period
- Diversify — Don't concentrate in one stock/sector
- Understand What You Own — Never invest blindly
- Manage Risk — Position sizing is critical
- Costs Matter — Frequent trading compounds costs
- Tax Efficiency — Hold > 1 year for long-term rates
- Stay Informed — Monitor earnings, news, sector trends
Next Steps