If you want to become a stock market investor, it is easy to become confused with the myriad of investment options that are available to you.  Each option has a different set of risks and rewards, and they each offer different advantages to the trader.  Once you understand the intricacies of the available investment options, you can make the best decision for your portfolio. 

Trading stocks

Equities such as common and preferred stocks give you shares of ownership in a business, and they technically give you the right to vote on issues that affect the future of the company.  Shares can be public or private, with private shares not requiring approval by a regulatory authority.  Public shares have disclosure requirements and are regulated by the government.  They are also the ones that are listed on the stock exchanges and are thus completely liquid at a fair market value.  The prices of shares are set by the buyers and sellers, and can fluctuate throughout the day, the week, and the year.

From an investing point of view, equities can be a profitable short-term or long-term investment.  In the short term, you can sell the stocks for a profit when the price rises.  From a long-term perspective, you profit from potential dividend payouts, as well as appreciation of the stock price.   

Opting for options

An option contract provides you with the right, but not the obligation, to buy or sell an underlying stock at a specific price (strike price).  The contract for the option is very specific, and it has a set price and expiration date.  
The risk with options is that it can lose value, either when it is significantly out of the money (far away from its strike price), or when it expires.  You can decrease the risk with options by trading spreads, which hedge a put (right to sell a share of stock at a fixed (strike) price) or call (right to buy a share of stock at a fixed (strike) price) against each other to protect you from major fluctuations in the underlying stock price.  While options are not for everyone, they are an excellent way to leverage a lot of stock for a fraction of the stock’s price. The Chicago Mercantile Exchange (CME) provides a market for equity options and is an excellent source of information about option trading as an investment strategy.