Trading in stocks scares most newcomers of investments. Most of us have the idea that stock trading is only for the elite or professional traders. Traders use nuanced terminology, graphics, and charts that look like rocket science to most. But like most things, expertise helps but that doesn’t mean you cannot do it. “Trading stocks” is not like trading your lunch at school, your pudding for your friends’ crackers. Stock trading actually is the term for buying and selling of stocks.
Stocks Basics
Starting from the very beginning of the definition a stock is a share of ownership of the company who issued the stock. So, when you buy a stock, you are in part buying ownership of a percentage of the company itself. Stocks are the preferred choice of investment for masses who want to invest in some of the biggest and smallest companies in the globe. Vice versa, companies use the money raised from these sales of stocks to fund the operation growth, current and future products and projects.
Ordinary people prefer to invest in the stock market in hopes of earning a hefty return on their investment. Everyone wants to have the next Apple and Microsoft startup stocks in their portfolio but most companies don’t turn out to be global giants. In fact, looking at most long-term investments, the average annual return on the stock market is 10%. There are two ways that people make returns from their stocks:
- Stock prices appreciating, allowing you to sell for profit
- Dividends paid by the stocks. Dividends are payments made to the shareholders of the company. This money comes from the company’s revenue.
Now, Stock Trading
As mentioned above, there are two types of buyers and sellers of stocks, traders and investors. Their methods vary mostly by the time duration of trades and the general number of trades placed in any time period.
- Day Trading: This style of stock trading is the visual representation of people screaming in Wall Street; buying and selling stocks within hours. This method doesn’t worry about the long-term implications of the stock or company but rather the opening and closing point of the stock itself.
- Active Trading: This is a longer play compared to day trading where investors place around 10 strategic investments a month. Trying to take advantage of the short to medium term events of the company or markets to turn a profit.
So, now that we know what stocks are and how the pros trade them, let’s find out how can buy a stock yourself. First thing you will have to do is open your very own brokerage account, or an account specifically designed to hold your investments. Once your account is up and running, you need to figure out your personal budget, when it comes to money and when it comes to time.
After you figured your numbers out, now it is time to research some financial market and investment basics, like using Market order or buying and selling stocks immediately at the best price available and Limit order which is the buying and selling of stocks at a predetermined price. All newcomers of stock trading are recommended to invest their time in virtual trading accounts which give them a risk-free place to practice their investment strategies.
Stock trading, like all other forms of investments, requires you to inform and educate yourself before you can expect to dive in and make profits. So, always try to stay up to date and learn a new thing regularly. Choose your sources, brokers, risks, and budgets carefully and intelligently.