Trading shares | Stock exchange
When an investor purchases a share of stock, they’re investing directly in a company.
In exchange for this investment, they’re given a piece of ownership in that company.
Stock traders buy and sell trillions of dollars of stocks every day on various stock exchanges throughout the world.
Despite a wide variety of investment opportunities available today, investors continue making the choice to purchase stocks for many reasons.
Here are some of the biggest benefits of stock trading:
*Partial ownership means that investors are shareholders and can enjoy dividend payments.
*Stocks in volatile or new companies can provide enormous returns.
*Stocks in steady, established companies can provide good return with minimal risk.
*Stocks are a great way to diversify your portfolio if it’s mostly in bonds and savings.
Below, you’ll find all the information you need to get started trading stocks and making profits of your own.
Types of stock
In general, there are three types of stock:
These are also known as ordinary shares or common shares, and grant an investor their proportion of dividends, earnings growth, and voting rights. Buying common stocks makes you a partial owner of a company. Class A types of common stock have voting rights, while Class B common stock does not.
CFDs are the perfect market in which to make short trades because there aren’t any stamp duties and you can trade on a margin.
During bankruptcy, holders of preferred stock are granted priority over the holders of common stock. However, preferred stockholders usually don’t have any voting rights. Cumulative preferred stock means that a company’s backlog of owed dividends must be paid in full at a later time, while non-cumulative preferred stock where dividends do not have to be repaid if they aren’t declared.
These are stocks that aren’t listed on a major stock exchange, and they can be either preferred or common. An unlisted stock is purchased directly from a company, and is much riskier than buying stock from an exchange. Some investors do invest in unlisted stock despite the risks because they can offer incredibly high yields.
Other important concepts
When you’re trading stocks, there are a lot of different things to take into mind. You need to know what kind of stock you’re purchasing, and everything about the company you’re investing in. This includes financials, market trends, valuation ratios, and recent news stories.
There are other important things you’ll also need to keep in mind:
How liquid is the stock? If you’re purchasing a stock that doesn’t get traded very often, you’ll often be at the mercy of the market when you want to sell it. Usually, common stocks are highly liquid.
What is the annual yield? Your dividend will be based on your annual yield and is the payment you’ll receive every year for owning the stock. If you receive high dividends, you’ll make money even if the stock’s price stays stagnant.
Does this stock fit into my portfolio? If you’ve invested in nothing but energy stocks, you might need to diversify a bit.
Trading stocks without ownership
If you want to trade stocks without actually purchasing an ownership share in a company, you may do so by purchasing CFDs. CFDs, or contracts for difference, are sold by private trading firms as an agreement to pay the difference between a stock’s buy and sell price. You may hold a CFD for as long or as short a period of time as you’d like.
*Traders, however, because of some distinct advantages that they offer:
*There aren’t any brokerage fees for CFDs, usually, you only have to pay a small spread.
*Stock trading is a great way to earn a steady rate of return and enjoy dividend payments.
*Stocks can help diversify your portfolio, especially if you only hold bonds and securities.
*Stocks are a great way to earn a side income, even if you still hold a day job.
If you want to start making a profit on the stock market, you need to take the time to learn everything you can about stock trading.
The basics of stock trading
When you purchase stock on a stock exchange, you’re not simply making an investment. You’re also purchasing a piece of ownership in a company. This brings you earnings growth, dividend payments, and even voting rights. Even if the company goes out of business, you have a claim on any assets that are left after liquidation.
It’s important to know that while purchasing a stock does make you a partial owner of a company, you’re doing so with liability protection. Stocks are purchased under the assumption of limited liability. You are not legally liable for any trouble the company finds itself in, and you aren’t financially responsible for any debt the company might incur. Stock trading allows you to become a business owner without any of the risks, except for losing money on your investment..
Types of stock orders
When you decide to start stock trading, you need to go through a broker. They will make stock trades on your behalf and manage your portfolio for you. Through them, you will be able to make five general types of stock orders:
Market orders. A market order is when you ask your broker to buy shares at the current price or sell shares at the best current price. This is the most common type of stock order.
Limit orders. Limit orders occur when you tell your broker a target price that you want to buy or sell at. If this price is reached, the trade will be made immediately.
Stop market orders. A stop market order is the same as a limit order, with one difference.
When a market is extremely volatile or prices change overnight, your broker might not be able to get the limit order price request. In the case of a stop market order, they would make the trade anyway, getting the best price the market currently bears.
Stop limit orders. These orders are extremely versatile. You can set a price at which this order activates, and then make a certain limit order or stop market order rules after the activation price is hit. For example, you can say you want to keep a stock until it hits $100, then immediately sell if it dips back to $95.
Trailing stops. Limit orders can expire, but trailing stops last the lifetime of a purchase. You’ll be able to tell your broker to sell as soon as a stock falls behind by a certain percentage or number of points.
Basic stock trading strategies
Once you have the basics down, you’re ready to start trading. Your best bet is by following some basic, tried-and-true stock trading strategies:
Trading on an index. Trading an index, a collection of stocks is a good way to mitigate risk and dip your toe into stocks.
Buy and hold. Buying and holding a stock is purchasing stocks for long-term gain. You pick a stock with solid dividends and a strong forecast far into the future.
Short-term or day-trading. Day-trading is for investors who want to make a steady income by making short-term profits on daily market fluctuations. This is an extremely attractive strategy, but it is extremely risky and should be avoided until you have a good deal of experience.
A stock is an investment made in a company in exchange for an ownership share. Stock trading lets investors own pieces of businesses, profiting on their gains and sharing the burden of their losses. These stocks are bought and sold throughout the world on marketplaces known as exchanges.
Stock exchanges can be physical or virtual. Physical stock markets are much like anything you’ve seen on TV: busy, with traders screaming and trading at a rapid pace. Virtual stock markets are just as busy, but all trades are made electronically.
The purpose of these exchanges is to make investing in stocks simple. If there wasn’t a centralized marketplace, you would have to solicit sales and purchases yourself. These markets are a convenient way to bring buyers and sellers together without any of the hassles.
If you’re looking to start trading stocks, you’ll have three basic options:
American stock exchanges (specifically NYCE and NASDAQ).
Foreign stock exchanges (such as the London Stock Exchange).
Trading firms that sell contracts for difference.
Here’s what you need to know about each of the various exchanges:
Located on Wall Street in New York City, the New York Stock Exchange is the most famous exchange in the world. It was founded in 1792 in an agreement of two dozen New York City merchants and stockbrokers. Currently, the New York Stock Exchange is the largest stock exchange in the world, with the highest market capitalization of its securities.
The NYSE is a physical stock exchange, where the majority of sales take place on the actual trading floor. Some of the largest companies in the world trade on the floor of the NYSE. These companies include Wal-mart, McDonald’s, Coca-cola, General Electric, and Citigroup.
The NYSE is open from 9:30 am until 4:00 pm EST from Monday through Friday.
NASDAQ was created by the National Association of Securities Dealers in 1971 as an alternative for companies who couldn’t be traded on a traditional exchange. Unlike the New York Stock exchange, it doesn’t have a physical floor, and all the trades take place electronically over the Internet.
When NASDAQ was first founded, many of the stocks trading on it were from the technology sector. Today, NASDAQ is still known as a haven for technology stocks. Some of the world’s largest technology firms trade on NASDAQ, including Google, Microsoft, Apple, Netflix, and Tesla Motors.
Like the NYSE, NASDAQ’s trading hours run from 9:30 am to 4:00 pm EST.
The United States boasts the two largest exchanges, but countries all around the world have enormous exchanges of their own. Here are some of the biggest ones you need to be aware of:
London Stock Exchange. This is the primary stock exchange of England and the largest in Europe. This includes companies like HSBC, BP, and GlaxoSmithKline.
Japan Exchange Group. JPX was formed by the merger of the Tokyo Stock Exchange and Osaka Securities Exchange in 2013 and is the third-largest exchange in the world. It includes companies such as Toyota, Sony, Honda, Nintendo, and Mitsubishi.
Hong Kong Stock Exchange. The Hong Kong exchange is a fully operational stock and futures market based out of Central, Hong Kong. It trades many of the largest Asian companies in the world and dominates the world metal exchange since it owns the London Metal Exchange.
Other places to trade stocks
You have other options on trading stocks if you don’t want to go through the major exchanges. One option is purchasing CFDs from a trading firm, which is a contract for difference. These contracts are based entirely on a stock’s price, but you don’t actually own a share in the company. Instead, you’re speculating on the price and promising the trading firm to pay the difference if it falls. In turn, the firm will pay you any gains when you decide to sell.
Over-the-counter stocks are another option, although they’re incredibly risky. These stocks aren’t listed on the major exchanges and are usually considered penny stocks. Volume for these stocks is low, and there are few success stories. Wal-Mart itself started as an over-the-counter stock in 1970. These success stories are rare, however, and you are usually better off working on a regulated exchange or directly with a trading firm.