How To Start Stock Trading
If you are wondering where to begin to learn about stock trading, you may feel very overwhelmed. With so many websites about trading, start by finding someone to talk to about it.
Don’t worry – a primary reason for buying stock is the concept of limited liability. It is key to understanding the stock market to know that if you buy stock, your total risk is the amount you paid. If the company goes under, you lose your initial investment, but creditors can’t seek anything further from you – your other assets are completely safe.
There are two types of stocks: common and preferred. Common stock is what most individuals own, and it gives you, the “shareholder”, certain rights, such as the right to receive dividends, and to vote on corporate policies. All publicly-traded corporations have common stock, and it’s what you think of when you hear that a stock price has risen or fallen. Preferred stockholders have the right to receive dividends before common stockholders. Typically, preferred stock is purchased for the dividend income, rather than profitable trading.
There are several “stock markets”, including the New York Stock Exchange, the American Stock Exchange, and the Japanese Nikkei. Each stock is registered with a certain market, and is only sold there. Each market has professional traders, called “brokers”. Typically, investors place “buy” and “sell” orders with their broker, who acts as their agent in the transactions.
Most brokerages require that you open an account with a minimum balance, which may be a significant amount. Some firms cushion that blow by offering free stock trading, meaning they won’t charge their commission on the first few transactions made for you.
The stock market is said to “move” up and down; this is based on the overall decisions of all of the investors trading in the particular market as to whether they will buy or sell particular stocks, and in what quantities. Investment decisions are based on a wide range of highly variable factors, so it is impossible to predict exactly what the market will do on any given day.
Thus, the best stock trading is a product of a combination of luck, education, and analysis of market trends. Many market analysis tools are available, and a good broker – and a good investor – uses several of them in each investment decision. Any investment carries some risk of loss; but careful research can cut down on that risk, and having a reputable broker can mean the difference between serious loss, and serious profits.
Always remember that stock trading is not a guaranteed success. The market is always changing and can be very volatile. Trade well and good luck.
Filed under: Business