For a beginner, the concepts of stock trading seem daunting especially because there are a lot of technical terms and analysis involved. With experience, the process becomes simpler but no less stressful. A lot of investors who had been in the business for years can lose thousands, if not millions, of dollars overnight. There will always be risks involved in stock trading but there are ways to minimize your exposure. The Basics of Becoming a Stock Investor As an investor, there are three basic questions you need to examine when you’re interested in a listed company. • How much did other investors pay for the company’s stock? • How much will the stock likely to be valued in the future? • What factors can change the perspective of other investors? It is important to establish certain expectations about the return on investments. For example, if you’re interested in buying stocks from three companies, critically examine how much you’re willing to invest in each one. If one company shows dramatic growth potential over the short term, determine how much you want to invest in this company. On the other hand, if another company displays long term growth potential, calculate the amount of money you can afford to “tie up” with the stock. Understanding the Stock Market Generally, the stock market can be used to measure the economic health of a certain location. If production is high, inflation low, and unemployment minimal, the overall market gains. This is called the bull market. On the other hand, if the economy is experiencing a downturn, this is referred to as the bear market. Except in extreme economic circumstances, the drastic changes in the stock market are typically not brought about by the country’s economic health. It has more to do with the investor’s perception of the company’s health and the overall economic condition. When a certain stock suddenly becomes highly in-demand, other investors join in the fray and this drives the price further up. The opposite is also true because if a number of investors suddenly let go of a certain stock and its prices falls, other investors will do the same before the price becomes too low. For this reason, it is critical to have back-up financial resources before you decide to engage in stock trading. The market is vulnerable to investor psychology and perception. There will always be risks involved in stock trading no matter the amount of technical analysis you do. What You Need to Know About Stock Trading After you bought some stocks, you can take it one step further by learning about stock trading. If your stocks are not producing the returns you expected, consider trading it in for a potentially higher-yielding one. Stock trading can occur in two ways: in the exchange floor and computer systems. The former is more popular because movies and television shows depict the chaos in the exchange floor to your screen. The second technique, done through computer systems, is actually less complicated. However, the investor still needs to have a broker because the general public does not have access to investment programs. In this setting, the investor typically receives immediate confirmation through email.
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Online trading has been around for years now. Before the power of internet emerged, stock trading was limited to the halls of stock exchanges or dealing with brokers who charge expensive commissions to make transactions and manage a portfolio. All of this has changed; millions of people nowadays buy and sell stocks online not only in the U.S. market, but they buy and sell stocks all over the world markets.
As convenient as online stock trading is, not many people utilize it correctly to make money from stocks. On the contrary, it was believed for some while that the ease and convenience of online stock trading made people even lose more money than before. This doesn’t always have to be case because successful stock traders use online trading to easily make their transactions, manage their investments and take advantage of every profit opportunity they might find. Here are a couple of tips that will help you use online stock trading to your advantage.
1- Learn how to control your transactions: – This is the most important step that you have to take before you do anything else. All of the top trading accounts like E-trade or Ameritrade provide valuable and useful tools to help the online investor control their transaction. You can actually place buy and sell orders at defined price points and leave the whole thing to be automated! Not just that, you can place buy and sell orders to be executed on certain conditions or if the stock behaves in a certain way. For example, you bought a stock at $10 and you know that if it goes below $8 it will never stop falling. You can place an order to sell if the stock price reaches or drops below $8. Or you can place an order to sell the stock once it price reaches or rises above $13.
2- Learn the tools of the trade: – it isn’t enough to open an online trading account, which is as easy as opening a PayPal account! All of the top trading accounts like E-trade or Ameritrade provide valuable and useful tools to help the online investor achieve maximum results. The tools you can find are like analysis tools where you can plug in some financial numbers concerning a certain stock like the price of stock, earnings per share, debt, equity, assets etc. After plugging in the numbers the analysis tool will calculate for you a number of ratios and financial indicators that will help you in making a decision like the debt to equity ratio, P/E ratio and book value of the stock. Another valuable tool that you can find is a real time tracking tool! Whenever you buy a stock, it goes into a table where real time data of the stock are displayed. Real time data like, stock price increases or decreases, selling or buying transactions and on what volumes and other indicators. This tool will actually instantly in real time calculate for you whether you are at loss or profit and the amount.
3- Use the speed of online trading to your advantage: – When you issue a buy or sell deal online, it will be executed in a matter of seconds. That’s how fast it is nowadays. It could lead to a disastrous mistake for beginners who are new to the stock exchange. On the other hand, for the experienced traders, it is a blessing. You might have heard about day trading and actually the name help such in explaining it. Day trading is about stock traders who buy and sell stocks on the timeframe of one day. For example, a day trader can buy a stock on market opening at 9 a.m. and sell it anytime at the same day. This has only become possible because of the power of online trading. In order to use this method successfully, first determine your entry and exit points before hand and then place your orders. Very few stocks move big to give you big profits on the same day, but some do. In order to take advantage of these small ups and downs of the stock, you should invest larger amounts of money than usual.
4- Use the power of online research: – Nowadays, you can get any kind of information online. Suppose you want to invest in a company and need to make a decision fast. You can pull up the company history, financial annual and quarterly reports, insider’s activity, any news on the company’s business deals or new projects and much more online. Just type in the company name or stock symbol and download endless PDF reports and find dozens of links all about this company. This is a distinguishing feature of the internet age that you should harness to the fullest. This same research used to take weeks or even months before information started to be syndicated online. Do your due diligence to the fullest degree possible before you click your mouse to buy a stock!
As can be seen, stock trading online has a lot of advantages. A lot of tools and gadgets are available to empower you to become a better investor. My advice is first to set up a fictitious portfolio at the beginning and practice buying and selling like you are doing it in real time. Once you think you are becoming better doing it and made at least 3 profitable transactions, then start investing real money. I think it is an opportunity that everybody should explore regardless of the dwindling economy because there are many sectors in the economy that are still doing well like energy, alternative energy and precious metals and resources. Just practice enough and then go for it.
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