Basics of Stock Trading

Your 5-minute guide to the fundamentals of stock trading

The legendary King Midas, a popular figure in Greek mythology, was famous for his ability to turn everything that he touched into solid gold. Ah! How many of us wish for such a golden touch, how many of us believe that such a gift would solve all our financial problems or enable us to achieve all our financial goals?

A lot of us believe that stock traders indeed have such a golden touch. Who among us has not heard of traders making multi-million dollar profits on a single trade? The streets of Wall Street are lined with gold – or so it appears to us! If indeed we could get on this gold-paved street, we would soon achieve financial nirvana – thus goes the popular belief.

Indeed, stock trading can be a highly profitable activity – and, you may pursue it as a full-time vocation or as a part-time activity that you dabble in during the spare time that you have (thus using your spare time profitably). In this brief article, we will quickly unlock the gates of financial success for you – we will show you how you can quickly get into stock trading and make your way to prosperity.

How to get into stock trading

So, you want to know how to be a stock trader but are worried that you need to sell your soul to the devil in order to achieve this. Do not worry; we will not let the devil take your soul. We will tell you how to buy and trade stocks – quickly, conveniently and profitably.

The first step to becoming a stock trader – and becoming financially successful – is to get a broker. A broker essentially buys and sells stocks on your behalf on the stock exchange – thus saving you from the hassle of becoming a member of a stock exchange. Stock exchange memberships can be very expensive – and require you to follow a long and cumbersome application process. A stock broker saves you from all these problems and enables you to become a stock trader – even if you wish to start investing with very small amounts of money. While some brokers may require you to invest some minimum amount ranging from $ 100 to $ 500, many brokers have no such preset limits. Do note that some brokers may require minimum investment of amounts up to $ 50,000 or even higher. Hence, you should first check out the services offered by different brokers and then identify which broker offers conditions that are best for you.

You must also take into account the commissions charged by different brokers. As we have seen, brokers enable you to trade stocks without needing to become a member of a stock exchange. In lieu of this service, brokers charge you a small commission on every trade (sale or purchase) that you execute. Additionally, some brokers may also charge a small monthly (or quarterly or annual) membership fee or subscription fee. Again, you need to compare different brokers and the fees that they charge and then identify which broker appears suitable to you.

Keep in mind that different brokers may offer different levels of service as well. For example, a full service broker may give you lots of personalized advice and may practically teach you how to trade stocks. But, in turn, such a broker may require minimum investment of $ 10,000 and above. Such brokers may also charge high membership fees and large commissions. On the other hand, a discount broker may charge zero membership fees and low commissions – such brokers may also have no minimum investment requirement. Such brokers may provide you very little service/support (except for a website on which you can place your orders or a phone number where you can call in and place your orders). Some discount brokers may also have a physical office close to your place of residence or place of work. These brokers may work best for you as they may be able to provide some suggestions or support or additional service. So, do compare several brokers, their services, and their charges before deciding which broker to choose.

How to trade stock (including how to trade stocks online)

Once you have chosen a broker, it would be very easy for you to actually trade stocks. Every broker has a detailed manual that explains exactly how you can place orders (whether on the phone or online) and what terms and conditions you must adhere to. Many brokers would even give you some sort of demo online window where you can carry out dummy trades (practice trades) before actually investing your money. Thus, trading stocks is actually rather simple.

The real challenge lies in the background work (preparatory work) that you need to do before deciding to make a particular transaction (or trade). First of all, you must ensure that you understand the basic vocabulary (jargon) associated with stock trading. Investments made without understanding the basic terms associated with trading would be similar to shooting in the dark – such investments would not be likely to fetch profits.

Second, you should identify a small list of companies (not more than 10 to 12 initially) that interest you (and in which you wish to trade). For this, ideally, you should choose industries that you understand well.

Third, you must go through complete and detailed information (financial reports, stock market performance data, etc.) for the companies that interest you. This would enable you to identify which companies’ stock is over-priced, which stock is under-priced, etc.

Once you have this information, you are ready to start trading stocks.

Welcome to the golden world of financial opportunity

That’s it – you have understood the basics of how to trade stock. You are ready to step into a world of financial prosperity. Remember always, the key to success in the stock market lies in thorough research and preparation. Start doing the background work (preparatory work) that we have listed above and success will be yours. Your future is in your hands – the more thoroughly you prepare, the greater would be the profits that accrue to you.

Happy trading!

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