What Is a Stag in the Stock Market?

A stag is an investor who engages in speculative trading activity. When discussing a stag in stock market terms, you’re using a slang term to talk about day traders who buy and sell securities with a goal of reaping short-term profits.

Stags base their trading strategies around current market movements, relying on technical analysis to help them identify trends, with a focus on initial public offerings (IPOs). That sets them apart from bull and bear speculators, who take a longer view of the market when anticipating price movements.

Stag Definition

Stag isn’t an acronym for anything; instead, it’s a slang term used to describe investors who engage in short-term, speculative trading. Stags aim to benefit from short-term price movements by buying low and selling high. They can trade different types of securities and employ different strategies, either bullish or bearish, in executing trades to achieve maximum profit.

Stags and Market Speculation

To understand stag in stock market terms, it’s helpful to look at the difference between investing and speculation. Investing typically means putting money into the market in the hopes of seeing a long-term result, usually capital appreciation. For example, an investor may purchase 100 shares of a value stock in the hope that those shares will have increased in price by the time they’re ready to sell them 10, 20 or 30 years down the road.

Speculation is different. Investors who engage in market speculation, including stags, focus more on what’s happening in the short term and how they can leverage those trends when trading. Stags will generally accept a higher degree of investment risk in order to turn a profit within a fairly short time frame. They use technical analysis, rather than fundamental analysis, to help them make educated guesses about which way a security is most likely to move.

Is a Stag a Day Trader?

Investors who follow a day trading strategy buy and sell securities to capitalize on large or small price movements throughout the day. For example, they may buy 100 shares of XYZ stock in the morning and sell those shares in the afternoon before the trading day closes. Some day traders may buy and sell the same stock minutes or even seconds apart in order to lock in profits from fluctuating prices.

Following that line of thought, a stag could be considered to be a type of day trader. Both stags and day traders typically require a sizable amount of capital in order to execute trades aimed at making a short-term profit. They also have to be relatively savvy when it comes to using online brokerage platforms to buy and sell securities. And, of course, they have to be willing to accept the risk that goes along with engaging in speculative day trading.

The stag meaning in the stock market isn’t limited to retail investors, however. Institutional investors can also fall under the stag umbrella if they engage in speculative trading activity. Institutional day traders can work with different financial institutions such as private equity funds and hedge funds to execute speculative trades on their behalf.

💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).

Understanding Stag Trading Strategies

Stag investing revolves around active trading strategies and there are different approaches an investor may take in their efforts to secure short term stock profits. The goal with active trading is to beat the market’s performance whenever possible. Stag investors approach that goal by paying attention to market trends and momentum.

For example, if a security’s price is steadily trending upward a stag investor may speculate as to whether that trend will continue or whether a pullback might happen. If the security’s price drops, the investor may choose to buy shares if they believe that the price will rebound and they can sell those shares at a profit later. They can employ a similar strategy with stocks that are in decline already, if they believe that a price reversal lies ahead.

A stag investor may use a stacking strategy to maximize profits. Stack meaning in stock market terms can refer to different things but when discussing day trading, it means aligning trades to move in the same direction. Assuming the investor’s guess about a security’s price movement proves correct, this strategy could help them to multiply profits.

Stag traders may study stock trading charts in order to identify points of support and points of resistance when tracking price movements. They may be looking for signs that a stock is approaching a breakout, which could suggest a substantially higher price in the future. Stock charts can also be useful for telling a stag investor whether a security’s trading volume is moving bearish or bullish, which can hint at which way prices are likely to move in the near term.

Differences Between Stags, Bulls, and Bears

Stags, bulls, and bears are all different animals, so to speak, when it comes to trading. While stag investors focus primarily on the short term, bull and bear speculators take a longer view of the markets.

Bullish speculators are banking on a rise in stock prices over time. So they may buy securities with the expectation that they can turn around and sell them at a higher price. Bearish speculators, on the other hand, have a more pessimistic outlook in that they expect prices to drop. They may sell off short positions in stocks in anticipation of being able to buy those same securities later at a lower price.

Stag investors can act bullish or bearish in their approach to trading, depending on the overall mood of the market. They may even change from bullish to bearish and back again several times over the course of the same trading day as stock prices rise and fall. Again, that’s not unusual considering the short-term nature of stag trading versus the longer outlook assumed by bull and bear traders.

Do Stags Trade IPO Stocks?

An initial public offering, or IPO, marks the first time a company makes its shares available for trade on a public exchange. Investing in IPOs can be highly speculative, as IPO valuations don’t always align with a company’s performance once it goes public. Some highly anticipated IPOs can end up being flops while other IPOs that fly under the radar initially end up delivering better than expected results to investors.

Stag investors may buy IPO stocks if they believe there’s an opportunity to capitalize on volatility in price movements during the first day or first few days of trading. The challenge with IPO investing is that there isn’t a lengthy track record of performance for the investor to study and analyze. Since the stock hasn’t traded yet, the same technical analysis rules don’t apply.

That means stag investors who are interested in IPOs must do a certain amount of homework beforehand. Specifically, they have to study the financial statements and documents released as part of the IPO process. They also have to take the temperature of the markets to get a feel for how well the company is likely to do once it goes public before deciding what type of bet they’re going to make on that stock’s debut.

IPO Flipping

Since stags typically aren’t looking for long-term positions, it’s not unusual for them to buy IPO shares then resell them in a short period of time. For example, they may buy shares of an IPO in the morning and sell before the first day of trading ends if pricing volatility works in their favor. It’s also possible for stag traders to buy into an IPO before the company begins trading on an exchange, then sell their holdings once trading opens.

This practice is referred to as IPO flipping and it works similar to house flipping, in that the investor seeks to buy low and sell high quickly. Flipping IPO stocks isn’t an illegal practice as far as the Securities and Exchange Commission (SEC) is concerned, though it is generally frowned upon.

Brokerage platforms can enforce an IPO flipping policy that outlines what investors are and aren’t allowed to do in order to discourage this practice. For example, SoFi’s flipping policy may impose limits on future IPO investments and/or fees for traders who are identified as flippers.

Stag Trading Strategy Example

Here’s a simple example of how a stag trading strategy might work.

Say a new company is set to launch its IPO with an expected valuation of $35 per share. After studying the company’s financials and market expectations for the launch, a stag investor decides to buy 1,000 shares of the stock 10 minutes after trading opens. Within an hour of the company going public, investor demand pushes the stock’s price up to $45 per share.

At this point, the stag trader could sell and collect a $10 profit per share, less any commission fees their brokerage charges. But they have a hunch the price may climb even higher before the trading day is done so they hold onto their shares. By 3 pm the stock’s price has climbed to $52 per share, at which point the trader decides to sell.

Of course, this example could have gone the other way. It’s not uncommon for an IPO to open trading at a higher price point and drop throughout the day. If the investor’s hunch had proven wrong and the price dropped to $25 per share, they would have had to decide whether to cut their losses or carry over their position for another trading day to see if the price might turn around.

💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

The Takeaway

Stag trading is a term used to describe investors who engage in short-term, speculative trading, and stags aim to benefit from short-term price movements by buying low and selling high. This is common when a company issues stock through an IPO, which may allow an opening for a stag to generate quick returns.

IPO investing can be attractive if you’re hoping to get in on the ground floor of an up-and-coming company. You may also be interested in IPO flipping if you’re an active day trader. Given that this is all fairly advanced, it may be best to speak with a financial professional before trying it for yourself.

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Photo credit: iStock/AleksandarGeorgiev

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