Definition

Stock Screener

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What is a stock screener?

A stock screener can be defined as a tool that can be used by both technical  and fundamental investors that allows them to sort through a range of stocks and ETFs as per their own requirements and understanding. Usually, stock screeners are available free of cost on brokerage trading platforms. There are also few subscription-based screeners that are offered by brokerage firms.

By employing a stock screener, the investor gets the flexibility to employ the methodology that they perceive as suitable for ascertaining the high-value stocks or ETFs. In addition to this, a stock screener helps the traders identify the trading opportunities in the market.

Highlights
  • A stock screener can be defined as a combination of technical tools and fundamentals that empower investors to sort through a range of stocks and ETFs as per their personal requirements.
  • Stock screeners are available free of cost on brokerage trading platforms, with a few being subscription-based screeners offered by brokerage firms.
  • By employing a stock screener, the investor gets the flexibility to employ the methodology that they perceive as suitable for ascertaining the high-value stocks or ETFs.

Frequently Asked Questions (FAQs)

What is the working of the stock screener?

With stock screeners, the investor can sort the financial investment and the sorting generally includes the personal criteria of the investors. Therefore, the investor becomes part of the sorting procedure as they are required to select the parameters for sorting as per their personal requirements and investment objectives.

Let’s understand the working in detail with the help of an example. Assuming that there are two types of investors with the investment decision of the first investor being based on fundamental analysis and that of the second investor being based on technical analysis. So, the first investor will be interested in recommendations of analysts, market capitalisation, operating cash flow, earning per share, dividend yield, return on investment, historical performance and so on. On other hand, the second investor will be interested in the relative strength index, average directional index, average crossovers, chart patterns and so on.

With the increase in the sorting criteria, the pool of securities that is suggested by the stock screeners become smaller in size. It can be summarised that stock screeners fulfil all types of needs and can be used by all types of users. One should acknowledge the list of criteria as per their investment requirements before entering into investment and trade.

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What are the characteristics of stock screeners?

There is a range of stock screeners that are available in the market and every stock screener offers many features and basic characteristics are present in all type of stock screeners.

Here is the list of the basic characteristics of stock screeners, namely,

  • The demand for the stock screener is usually high among beginners as they desire to try the screener for free and gaining better knowledge about the market.
  • In order to cover the majority of the financial products such as derivatives, funds; screeners must have a listing of well-known stock markets.
  • In the stock market, there are innumerable securities, and there are high chances that the investor might overlook the highly valued stocks. Here, the stock screener plays an important role, as the tool makes it easy for the investor to assess the pile of stocks and highlight the stocks that can fulfil the requirements of the investors.
  • Lastly, market inclusion and data points are important components of stock screeners.

Where can stock screeners be applied?

There are thousands of companies that are listed on the stock exchanges and selecting the right stock is a cumbersome task. By using a stock screener, the investor is able to shortlist the stocks that match their investment goals and the standards.

The three constituents that are required for running the stock screeners are a list of the variables, a complete database of companies and corporations and a screening engine that will help in locating the companies as per the defined variables.

While beginning with a stock screener, the user is required to answer few questions. The questions generally cover the user’s preferences in terms of the industry types, capsize of the stocks, 52-week low or low and values of ratios.

What is the importance of stock screeners for investors?

Saves Time – If the investor employs the traditional methodology of screening the stocks, then filtering thousands of stocks will consume a lot of time. Pragmatically, it is equal to impossible for the investor to assess all the security individually on numerous parameters. Thus, the stock screener solves the issue as it assesses all the securities in the database on the basis of the chosen parameters.

Investment decisions are not affected by personal bias – On the sorting stage, personal biases can have an impact and can lead to taking unwise decisions. Stock screener helps in avoiding these biases as all the filtering takes place on the basis of figures and facts.

Identifying new investment opportunities – It is not possible to assess all the securities that are listed on the exchanges and therefore, the investor misses some of the best opportunities in the market. A stock screener is a tool through which new investment opportunities can be identified. As a result, the investor’s knowledge about the stock increase and making the portfolio effective.

What are the limitations of the stock screeners?

Quantitative comparison – Generally, stock screeners only include the quantitative variables and qualitative factors are ignored while sorting the securities. It is important to give due consideration to the qualitative factors as well such as tentative mergers and acquisitions, lawsuits against companies, changing technology, governance and so on.

Comparison parameters are not valid – Sometimes beginners use stock screeners and they do not have the knowledge about parameters that have an effect on the stock prices. In such cases, it becomes completely invalid for the users to employ stock screeners. The results produced might not be useful for the users at all.

Determining specific criteria – In many cases, the investors have a huge list to choose the parameters from and they are not able to select the right criteria for themselves. Sometimes, they choose too many criteria and receiving very limited output and sometimes, they chose limited criteria and output is huge. As a result, it becomes inconvenient for them, to choose the right security.

 

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