Stock Trading is the exchange of stocks in a market. A stock is a share that is issued or made public by a corporation. A corporation issue stocks to gain more capital, which it might use to expand, manage debt, and deal with acquisitions.
Before you delve into the complicated but fun world of trading on stock markets, it is crucial that you understand what a stock is. This stock trading how to guide will focus on it in the next section.
Stock Trading Explained
To have an idea about the basics of stock trading, start with imagining a corporation as a person who owns a pie. If the corporation put some slices of the pie for sale, anybody who buys a slice will become a stockholder.
Since a stockholder owns a slice of the pie, he is a shareholder of the whole pie. Meaning, he partially owns the pie. However, it does not mean that he owns a part of the corporation. That shareholder only owns a part of a property owned by the corporation.
Most explanation about stocks and stockholders can be misleading. Saying that the amount of stocks you have fully represents the percentage of your ownership over the company. No. The percentage of your ownership depends on how much stocks a company issued or made public.
Say that the company made 10% of its assets to be available for the public to buy. If you buy 20% of those issued stocks, you will only own 2% of the company. After all, 20% of 10% is 2%.
Since that is the case, being a stockholder of a company does not immediately mean that you will have control, full or even partial, of the company. Also, it also does not mean that you own any physical asset of the company and just take and then sell them as you please. In the example, you only own a part of the corporation’s pie. You do not own his other things like his clothes, chairs, or tables.
Anyway, you do not need to worry about those things too much. The important thing here is that you know what you are buying, selling, or trading.
How can you exactly profit by trading company stocks? The most basic method of profiting from stock trading is that you buy a stock that is of low value. This means that you will take advantage of the increase of your share’s price.
After a while, you will wait for that stock to appreciate in value. When it is already high in value, you sell it. The difference between the amount of money you used to buy the stock and the final price that it was sold for is your profit.
Another method that you can do to profit from trading on stock markets is by taking dividends. Having a share of the company gives you the privilege of owning a percentage of the company’s income. As the company’s profit increases, the dividends you will receive will increase, too.
Stocks are a very popular financial instrument to trade. It has been established long ago, and it has been proven as an effective method for companies to gain investments and for traders to profit.
For the past few years, it has been performing mediocrely. Other types of trading and exchanges, such as binary options and forex, have been overshadowing it. However, with the recent boom in 2017, the stock market has been rejuvenated. It was able to reach a new milestone — a feat it was not able to do for the last 50 years.
Because of that, the stock market has become attractive to traders again.
Another reason stock trading is becoming popular again is because of online brokers. More people are easily drawn to the trading industry. They made it possible to make trading much more accessible to the common man by bringing in trading platforms that can be accessed through the web.
Those platforms basically allow clients to have the information they need firsthand. In addition, they have made it possible for clients to work independently from a broker. By trading online, the client is able to retain full control of his portfolio and his deals without the aid of a consultant or broker.
The safety of your trade is completely up to you, especially if you are not working with a traditional broker. With any type of trading and investment, there will be always a risk. Always remember that your profit or the reward is often correlated to the amount of risk you take, but not always.
If you dive in head first in trading on stock markets without any prior knowledge in the financial industry or the company that issued the stocks, your investment will be completely in trouble. This is one of the reasons most stock traders opt to hire a personal broker to help them with their trading adventure.
When safety is talked about, it is possible for stock trading to be unsafe for your investment if you sign up with an unreliable or malicious online broker. With the ease of establishing stock trading sites and creating anonymous personas on the web, almost anyone can victimize a complete newbie on the Internet and financial industry.
The best way to counter this is to always make sure that you have complete information about the broker you will deal with. This can be done by diligent background research or taking advantage of reputable broker review sites.
What a malicious broker can do is to make their clients “trade” on their platform. However, even if they seemingly make profits on their trades, no actual money is being generated. The only time the client will know that they were scammed is when they try to withdraw their earnings and deposits. The broker will not give any money back.
When to Trade with Stocks
The answer to that is now. With the recent improvement in the stock market last year, there is no doubt that this year and the following years will ride on last year’s coattails. Primarily, the technology sectors and companies are getting stronger. Google is one of those companies, and even if you are not familiar with the exact numbers in trading on stock markets, you know that Google’s stocks are too valuable.
Also, commodities like gas and oil will always be strong. Finance industry, however, is experiencing slow and steady growth. With booming economies in the west, finding an excellent stock to buy is just a matter of time.
Thankfully, it is easier to get involved in stock trading nowadays. This website hosts a list of stock brokers around the world. They are the best and the most popular ones. Each listed item comes with in depth reviews that will give you all the information that you need to know.
Also, once you pick a broker in the list, rest assured that creating an account with any of them is simple. Usually, they only require a Facebook, Google+, or email account. If you give any of this information, you will have an account with the broker within seconds.
However, even if you have an account, you cannot trade until that you provide the minimum deposit required. The amount that you need to deposit varies from broker to broker. But if you do provide the minimum deposit to the broker, you will be able to use his trading platform right off the bat.
Alternatively, some brokers offer demo accounts. Demo accounts are integrated in the usual brokerage account that you sign up for. You can use a demo account to explore and practice in your broker’s demo platform. Demo platforms are virtually the same as the regular trading platform, but it cannot actually move any money. What that means is that if you trade in a demo account, the trades will not affect any real stock and if you deposit real money, it will not be touched.
Beginners Guide to Stock Trading
Stock trading for beginners usually starts with working closely and diligently with your stock trades and activities during the first few months. Learning and researching are keys for you to become successful or make stock trading profitable to you.
The first step in trading on stock markets is for you to gain a capital. How much capital, you ask? It depends on the company that you will buy. For example, a stock of GOOG (Google/Alphabet Inc.) in NASDAQ costs $1,126.79 (as of February 23, 2018). On the other hand, a stock of FL (Foot Locker Retail Inc.) in NASDAQ costs $48.25 (as of February 23, 2018).
You can see the price disparity between the two companies. The price of stocks can vary wildly depending on the company’s net worth, popularity, and performance.
For beginners, it is recommended that you start around with a capital of $30,000. By the way, $25,000 is also the legal minimum amount that the US Securities and Exchange Commission requires for day stock traders. The amount of $30,000 is recommended to give the trader room for initial risks, errors, and losses.
You can earn from stock trading by acting as a trader or an investor. As an investor, you will rely on the dividends you will receive from the company. As an active trader, you will profit from the return of investments you will gain from the difference of the buying and selling prices of the stocks you have.
Second, you will need to find a broker or brokerage to work with. In this one, you have two options. You can either rely on traditional brokers or online brokers. This can be a tough decision to make. Each has its own advantage, with discount brokers becoming a popular choice among new traders.
Nonetheless, it is up to you to choose which one you prefer. They have their own pros and cons. If you want to start researching which type of broker you need, you can take advantage of the list of brokers here in the website. Aside from providing general information about those brokers, the list also comes with in depth reviews.
On a different note, it seems that the three things you need to do in trading on stock markets are buy, sell, and wait. As much as people want to portray stock trading as a simple financial option, it can easily get complicated.
For example, when trading stocks or other financial instruments you also have limit and market orders. At the beginning, these two orders can be confusing. But once you master it, those two orders can help you manage your risks and maximize your profits.
A market order allows you, the broker, or the platform to sell or buy when an asset reaches a favorable price. For example, if you bought the stocks for $10 and you set a market order, the platform may sell those stocks if their value becomes $10.01.
A limit order, on the other hand, allows you, the broker, or the platform to have a defined limit on how much it will automatically buy or sell. For example, you put a buy limit order to an asset and set it to $11. As long as the price of the asset goes below $11, it will buy the asset. If it goes $11, then it will stop buying.
There are other orders available in stock trading. They are stop, all-or-none (AON), good ‘til canceled (GTC), and day. These orders will have you full control of your portfolio and even automate your stock trading activities.
Best Broker for Stock Trading
The best broker for trading on stock markets will be different from everyone. Because each trader has different needs and wants, it is crucial that each one choose the perfect broker for them.
For example, a trader might want a broker that can offer financial advice. It is best for him to choose a traditional broker. Some brokers, on the other hand, see that the financial advice is just a waste of money. For them, discount or online brokers are ideal.
For you to get started on choosing the best broker for you, it is recommended that you check the list of brokers in this website. As mentioned before, the brokers listed here come with complete information and with in-depth reviews.
However, despite being confident of providing all information, the site still recommends that you also do additional research. After all, new information is released and discovered every day. It will be sad if you experience a deal breaking feature that was not mentioned here because the review was created before the feature was created or implemented.
Great sources of additional information about a broker are its website and social media pages. Secondary sources of information are aggregate review websites and business authority websites like BBB. Other places you might want to go to dig more details are financial question and answer websites and stock trading community forums and blogs.
By the way, most of the brokers listed here are from the European Union. All of them are regulated and licensed by national financial authorities in the regions. Since these brokers are in EU, their clients are allowed to deal and mingle in EU based markets even if they are outside the union.
You do not need to think that you can only sign up to only broker. You can actually work with multiple brokers as long as you can shoulder all fees.
Aside from those considerations, it is also crucial for you to check on your potential broker’s customer support. As a new trader, you might always find yourself with one question after another. That is where good customer service comes in. It will be much convenient to ask your broker for help instead of looking around the internet for answers.
Benefits of Stock Trading
There are multiple benefits in trading on stock markets. Primarily, it is a flexible trading option that can be used for short or long term trading. If you want short term, you can just buy and sell stocks. Even if the stocks only appreciated for a bit, you can just sell it for a quick and small profit.
If you want to deal with stock trading for a longer term, you can decide to just wait for the dividends to come in. If you want to improve your investment, you can always use the incoming dividends as capital to buy more stocks you favor.
On the other hand, you can treat stock trading as a hobby or a game. If you are fond of making analyses, creating accurate guestimates, and playing with numbers, you will definitely enjoy stock trading.
If you want to take it seriously, you can easily expect that you will go places with the profit you can earn with stock trading. That is no exaggeration. There are too many