Stock Market Trading Basics: A Guide for Beginners

Stock Market Trading Basics: A Guide for Beginners

You may be very much interested in increasing your knowledge and trading experience to reach the goals you have set for your success in the stock market. Unfortunately, most beginners do not know the best time for stock trading and are ignorant on the devotion needed in trading. This makes many of them to be at risk of failing in their initial investments.

A stock market is not a place wherein you can get into blindly and that is why you need to learn in-depth about it. As a beginner, your overall experience in stock market trading may be very limited. This may also confine you to make no more than a few of trades on a monthly basis using a cash account. However, this does not mean that you should not have high hopes of gaining returns on your trading activities.

What is a stock Market?

Stock market refers to a place wherein shares or stocks of a company are traded at a mutually agreed price. Variations in stock prices are seen on a regular basis because of the change in supply and demand. If more investors look to purchase a particular stock to sell it, the price is likely to move up and vice versa.

What are Stocks or Shares?

While both shares and stocks are used interchangeably, they have several different characteristics. Stocks are the ownership certificates of any company whereas shares refer to the ownership certificates of a particular company. If you are purchasing shares of a company, it means you will have partial ownership of that company. This will also allow you to avail voting rights in that particular company. Stocks do not come with any guarantee of returns when traded alone. Instead, they can be great to make money through dividend even if the price of that particular stock goes down. This also gets you the guaranteed profit on a share especially if the company is offering dividend on that particular share.

How Stock Market Trading is Carried Out?

Stock market trading is carried out by licensed brokers in stock exchange. In order to start trading in the stock market, you have to have a dematerialized (Demat) account and then approach to a licensed broker. These brokers can give their sub-brokers an authority to transmit the trading orders so you can be in touch with a sub-broker too. In view of that, it may be a better option to contact a sub-broker because brokers usually do not entertain small investors and prefer dealing with big investors.

In general, a stock market enables you to make money by purchasing or selling the shares of a particular company. Once you get the authority to trade in the stock market, you are allowed to trade upon different stocks or shares. In other words, the stock exchange acts as a link between the purchaser and the seller who agree to deal at a mutually agreed price within a particular time span. Since stocks and shares are also known as equities, its relevant market is also called the equity market.

Essentials of Learning Stock Market Trading

Some of the key elements of stepping into stock market trading include establishing your goals, developing your risk-tolerance, making a stable stock portfolio goal, and have essential knowledge for succeeding in stock trading. Likewise, stock market trading requires you to be acquainted with your metrics and your stock market orders. Make sure you are well aware of what investment account type you will use and the portal you can choose to purchase stock.

Common Stock Market Trading Strategies

Stock market trading is about developing a stock trading strategy that can suit your requirements, expectations as well as your individual personality. If you want to make short-term investments and stay ahead in the market, it is crucial to delve into your comfort level for risk. Surprisingly, your age too affects the strategy you choose to use for stock market trading.

Here are some of the most common strategies being used in the stock market these days.

  1. Buy-and-Hold Trading – This type of trading strategy requires the investors to purchase a stock and hold onto it for a certain time period, such as, two or more years. If you conduct necessary analysis and market sentiment study and choose a stock wisely, the returns are likely to be quite large with few trading amount for buy-and-hold trading. Many investors who use this stock market trading strategy usually do not have a long-term trading goal so they just amass stocks and hold onto them.
  2. Long-term Swing Trading – Long-term swing traders typically focus on holding stocks for few weeks to several months. They trade the indexes and focus on timing of mutual funds or technical analysis of the stocks purchased. With a long-term trading goal, traders can filter out some of the trends that are common in the all sorts of trading markets. Since a long-term swing trading strategy is for a long span of time, a small move against it should not be a matter of concern. Consistent moves against the method, however, must not be ignored.
  3. Swing Trading – In this type of stock market trading strategy, the trader looks for larger moves in the relevant market. The trades they make may last for a day or several weeks. The swing trading strategy involves slower cycle of trades, fewer commissions, less chances of errors, and that’s why the ability to gain more significant multiday earnings through this strategy is higher. Swing traders typically use technical analysis to identify swing trading opportunities, targeting a significantly higher percentage of return than other trading strategies, such as in-day trading. The higher gain targets, however, do have a higher risk involved per trading opportunity.

Many people prefer getting into the stock market, hoping to gain a more substantial earning or a greater post-retirement plan. While there are several stock market trading strategies to implement, the best choice is to pick the one which particularly suits your needs and trading goals. This helps you meet your objectives when you enter into a trading business.

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