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During the business week, billions of stock are bought and sold every single day. This equates to trillions and trillions of dollars. Stock trading is an enormous business, and more people are deciding to take the plunge every week.
Investors choose to trade on the stock market for a wide variety of reasons, but here are some of the most compelling:
- Stock trading can provide enormous returns to a savvy investor.
- Stock trading is a great way to earn a steady rate of return and enjoy dividend payments.
- tocks 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 is 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 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 daytrading. Daytrading 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.
Now that you have the basics of stock trading down, it's time to get started with your portfolio. Make sure to create an account with us today so you can start trading stocks with CFDs today!