Stock trading 101 For the Aspiring Stock Market Trader
Stock trading is the process of buying, selling, and trading stocks. Stocks are equity securities of companies or corporations. The main way to profit from stock trading is by buying low and selling high. The secondary one is to gain shares from the company’s income.
This article is for complete beginners in the stock trading world. It contains the definition of stock trading and all the useful information that will help a beginner start his career in trading stocks immediately.
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What is Stock Trading?
Stock trading does not only deal with stocks; it also involves bonds and hedge fund shares. People who consider stock trading as a profession are called stock traders. Aside from traders, the stock trading industry involves other professions such as stock agent, speculator, hedger, broker, and arbitrageur.
To make it easier for you to understand what a stock and stock trading are, think of a company as a pizza pie. That pizza is sliced into eight pieces or stocks. Person A wholly owns the pizza and all its slices. However, he cannot eat all the slices, so he decided to sell a slice to another person.
Person B bought the slice for a dollar. Person C thinks the pizza is so good to pass up. Person B knew about Person C’s desire to get a slice, so he sold his part of the pizza for two dollars. Person C accepted the deal. During the process, Person B earned a dollar without doing anything special. On the other hand, if Person A adds toppings to his pizza, Person C’s slice will get them, too. His profit was the additional toppings. Losing an extra dollar can be considered one of his losses.
Stock trading has been popular ever since the popular stock exchanges like the New York Stock Exchange, also known as The Big Board, was built. For the past few years, it has become more popular due to stock applications, websites, and broker companies online. Basically, its current accessibility became the gateway for even the common person to deal with stock trading.
Now, it is receiving more attention, and that is because of its continuous great performance.
According to experts and traders, last year (2017) was the best year for stock exchange and it is anticipated that it will continue in the following years.
When it comes to risk and safety, both are up to you. Stock trading, and almost any trading industry for that matter, revolves around risk-return tradeoff. If you want to profit more, you take more risk. If you want to play it safe, do not expect that you will gain profit fast and that you will get huge returns from your investment.
Is It the Right Time to Trade Stocks?
Yes, it is the best time to trade stocks. As mentioned a while ago, the rising trend of the stock market is set to continue in the next few years. The success of stock trading last year is not an exaggeration. Truth be told, the market has not achieved that high for more than three decades.
With S&P 500 companies having a great performance with a return of 5%, it is a great hint that the global economy is expected to progress and achieve greater heights. According to Bespoke Investment Group, it is also projected that this year, the S&P 500 index will reach 11.6% gain.
By the way, the S&P 500 is a list of large businesses that have stocks listed on NASDAQ (National Association of Securities Dealers Automated Quotations) and/or NYSE (New York Stock Exchange). S&P Global Inc. or Standard & Poor (formerly McGraw Hill Financial Inc.). It is a financial analytics and information resource.
Another thing that makes it the best time to trade stocks is that the perception that stock trading is a difficult industry to get into is now false. Traders now consider the recent years as the new era of trading.
As mentioned before, stock trading has become too accessible to everyone. As long as one has a mobile phone or computer with an internet connection, he can join the stock market.
In addition, there are companies that are willing to let new traders join without the need of any personal capital. Those that require capital can rest assured that it will be just a small amount. Also, stock trading can be a source of passive income. You do not even need to actively watch the market 24/7 to progress your career in stock trading.
Nowadays, even full-time workers can dabble in stock trading on their free time. With applications and companies that provide in-depth analysis information (usually for free), there is no need for you to watch the market’s activities all the time. Also, you can even get help from reliable brokers, who will basically do almost everything that a trader needs to do.
Of course, it does not mean that everything will be easy. If you choose to trade independently, expect that you will need to start with a capital of at least $25,000. And you need to maintain that amount as long as you trade.
How to Start Trading with Stock trading?
Before you start looking for brokers, companies, and stocks, you must master the basics. First, learn about the two main types of stocks: common and preferred.
Common stocks are typically the shares you buy from a company. If the company earns money, you will receive a part of its earnings. Even if the company becomes bankrupt, your investment will still return to you.
Preferred stocks are shares from a company that comes with a special privilege of becoming a priority. Preferred stock holders also can expect that they will be regularly paid by the company. Also, if a company goes bankrupt, preferred stock holders will get their shares first before common stock holders.
The only advantage that common stock holders have over preferred stock holders is that they can influence how the company is run and managed.
Now, you know the stocks you will be dealing with. To fast forward your career in trading, you should look for a reputable broker. In this web page, you can find a list of brokers you can deal with. Choose one, sign up, and trade. If you are afraid to get your hands dirty now, you can take advantage of demo accounts that will allow you to practice stock trading without risking real money.
Why should you trust binaly.com’s list of brokers? For one, the website will provide you with all the information you need about the brokers. From their customer support service availability to performance ratings, the site has all relevant details that you need to know.
Also, the site provides detailed reviews of each broker listed. You will know the pros and cons, account management, trading platforms, options offered, bonuses, and if the broker is fraudulent. The list is expending every day, and you can expect that you can rely on it starting day one until the last day of your stock trading career.
When engaging with stock trades, it is best to pick one or two stocks first. Do not get yourself overwhelmed. Get to know the system with the initial stock you have and be sure to keep track of it. Also, always keep watch of the company you chose. If you gain at least 1% of your investment, then it is time to expand and get additional stocks.
How to Choose the Best Broker for Stock trading?
There are thousands of broker firms out there on the market and that excludes independent ones. And it is understandable that sifting them and choosing the best one for you is a challenge. Even if you consult binaly.com, you can easily get dazed with their numbers. So, how do you choose the best broker?
Brokers can be categorized into three: brick and mortar firms, independent brokers, and online firms. To get the best broker, forget about the former two and focus on online firms — there is a reason binaly.com only lists the online ones.
The best broker depends on how you want to trade, so the initial step to get the right broker for you is to think about the type of stocks you want to exchange. Second, make sure that the broker is licensed. It will be better if the broker has multiple licenses to operate in different parts of the world. The ones listed in binaly.com are all license holders.
Aside from making sure that the broker with a license is trustworthy, the advantage of getting licensed brokers is that it will allow you to have a lot more trading options. For example, if your broker has a license in EU, you will have the capability to trade in all EU states and even have the same rights that EU traders have.
As a disclaimer, you should know that all brokers are equal. However, only a few will be able to cater to your own specific needs.
On a different note, all brokers in binaly.com are safe to deal with. You can even sign up to all of them if you want to. Some of them offer free accounts and demo accounts. And it is recommended that you sign up with those brokers first for you to get a feel on how the industry works first.
It goes without saying that signing up for free and demo accounts will allow you to avoid making a bad decision when it comes to your initial investment capital. If the broker you chose do not have a free or demo account, what you can do is to check out YouTube videos to get a glimpse of what its platform looks like. Most YouTube presenters will even include strategy and tricks you need to learn to get ahead in the trading market.
Why You Should Get Involved with Stock trading
First of all, it is all about the money. Stock trading can either give you small stable passive income or a massive one-time big time return of your investment. Depending on how you play your card in this industry, you will still get money — of course, playing badly will get you the opposite.
Second, you have full control of where your money will go. Even if the company that you chose to get stocks from goes under, you are still the one who made the decision to buy its stocks in the first place. In addition, your money is still secured. Again, if the company gets liquidated, you get your investments back.
Third, it is all about numbers and it is now easier to learn. By being all about numbers, rest assured that you do not need to get a huge whiteboard and draw up some confusing and dizzying permutations and computations. Stock trading often just needs you to know the numbers that goes up and down in regards to your stocks.
Fourth, starting trading does not require a lot. In most cases, the only thing you will ever need are time and capital. If you do not have the capital, there are options that will allow you to start with none or a small amount. This means that if you find yourself with extra time, it is best that you use it to get started with stock trading.
Fifth, you can train yourself at your own pace. There is no need to put yourself in an unfamiliar jungle full of numbers and percent signs. As mentioned, you can always learn your way around by taking advantage of demo accounts. You can train as much as you want with real and up-to-date values without risking losing your hard-earned money.
Sixth, you will be massively supported by the community and the brokers. Aside from broker sites, you can join millions of stock brokers — new or old — in online forums. In there, you can squeeze all the knowledge you can get. Also, if you have questions, you can ask them or use question and answer websites such as Quora and Stack Exchange (money.stackexchange.com).
Where and How to Trade with Stocks?
Know more about the local stock market or exchanges in your area. A few of the popular stock markets in the world are:
- New York Stock Exchange (NYSE) located in Wall Street, New York City
- NASDAQ located in Wall Street, New York (main New York stock market)
- London Stock Exchange located in Paternoster Row, London (main UK stock market)
- Hong Kong Stock Exchange located in Central, Hong Kong
Most countries have their own exchange. There are only a few countries that do not, and some of them are Brunei, Cuba, Monaco, North Korea, and Vatican City.
What is a stock market anyway? Before, they often referred to physical locations where stock buyers and sellers meet to trade. Nowadays, with the popularity and innovation of the Internet, the stock market has become an intangible place that can be worked on with online.
On the other hand, the market is also called exchanges. In stock trading, stock exchanges are grouped and can be independent of one another. For example, a company can go public and share its stocks on the NYSE, but not in NASDAQ. Also, it is usual that one country may have one primary stock exchange and may have multiple exchanges despite already having a main one.
In today’s stock exchange era, you do not need to be physically inside a stock exchange building. As mentioned a while ago, the place you can start trading immediately is on the Internet. Once you have found your broker, the location where you will perform your trades will be on that broker’s platform or app.
When it comes to the how of trading, the basic concept of stock trading is all you need: buy low and sell high. You can also just look for a promising company, and enjoy profit while it reaps success.
When it comes to how to use stock exchange platforms, you will need to learn on the platform itself. That is why it is recommended to get a demo account for you to get a feel of what you need to do. Also, rest assured that once you learn how to use a platform, you can easily transfer to another. After all, the only differences between them are the layout and additional features.
On the other hand, if you are truly eager to know more about the information you need without choosing a broker or testing a platform first, you can now join stock exchange forums and post questions in question and answer websites.
Now is the best time for you to engage in stock trading. The future is bright for the industry, and you do not need to have a special reason to join the fray. After all, it is a default that you need money, and stock trading is all about you getting more of that money you need.