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What Is Stock Trading and How Does It Work? is a frequently asked question among business-minded professionals seeking financial independence.
Scroll down for a reader-friendly overview of Stock Trading.
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Stock Trading is the buying and selling of SHARES of a company's STOCK.
A company that is listed on the Stock Exchange is selling part of its net worth (stock) in units of equal value (shares).
A share is a fraction of the company's net worth. All shares in the same company are of equal value.
People who own shares of a company's stock are known as Stock Holders.
These days, most stock trading is done online.
The trick is knowing when to do what. Experienced traders know how to buy shares in a company whose value is on the rise, then sell the shares at a tidy profit.
For example, let's say a company's stock is priced at one dollar per share, and you buy 100 shares for $100. Let's say the company's net worth increases, so the stocks are now worth five dollars a share. You could then sell your 100 shares for $500, which would earn you a profit of $400.
This is, of course, easier said than done.
Shares of stock are bought and sold through a Stockbroker. A Stockbroker can also explain more about What Is Stock Trading.
The broker charges a fee, so the stock holder must factor this in when deciding whether or not to buy or sell shares.
Here's a list of the Top 5 online Stockbrokers, according to stocktrading.net. They are listed in order of popularity.
3. TD Ameritrade
4. Motif Investing
image credit: marketconsensus.com
1. Decide what TYPE of stock trader you are.
This is largely just a question of personal taste.
The two main types of stock holders are long-term stock holders and Day Traders. Day Traders quickly sell the stocks they buy, while long term stock holders keep their shares for years.
Both approaches are legitimate. Are you a long termer, a Day Trader, or somewhere in between?
Knowing which type of stock trader you are is important for deciding which stocks to buy.
2. Invest in Companies that provide products and services you Know and Like.
You are more likely to understand the market values of companies offering products and services familiar to you.
3. Study Current Market Values.
Spend a few weeks scanning NASDAQ reports. Create your own graphs showing how share values change over time. Read the latest business news.
4. Recognize Market Conditions.
This is not so simple. Education, experience, persistence and attentiveness are key features to becoming a successful Stock Trader who knows the right time to take action.
5. If You Wanna Gamble, Go To Vegas.
When buying stocks, only invest as much money as you can safely afford to lose.
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what is stock trading
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