The concept of trading stocks is something that is very interesting but, you must be aware of the stock trading basics to take full advantage of it. Imagine owning a business without the stress of running it or going to work every day.
The company continues to grow regardless whether you make decisions for it or not. In the same manner, as the company grows, you earn more profits in return. How is this possible? This is where the stock trading basics become important.
Essentially, one of the stock trading basics you must know is that buying stocks allows you to collect dividend checks based on the company profits. As a stockholder, you become a part owner of the company and as such earn profit as the company continues to generate revenues and grows.
Many people believe that this is the great “American Dream” which has turned into reality by applying the stock trading basics. The beauty is that anyone can actually learn and apply the stock trading basics.
If you are not familiar with the concept of stocks, then it is about time you understand that it can represent one of the best financial instruments that will help you build wealth. In fact, many financial experts believe that stocks serve as the cornerstone of every sound investment portfolio.
This is why it is so important to learn stock trading basics if you want to create financial freedom with a solid foundation based on the stock market. The exponential growth of the stock market can be attributed to the increased interest of common people in this vehicle for wealth. By learning the stock trading basics nearly anyone can own the right type of stocks.
What people should realize is that owning stocks require you to know stock trading basics and not just hear stories exchanged around water coolers in the office. This will allow you to distinguish between myth and fact and help you generate a substantial income.
Protection from Market Crash
There are so many get-rich schemes on the market that people tend to have the notion that the stock market will allow them to become rich instantaneously. The amount of misinformation that you have to deal with like the stock market is risk-free can only be corrected by investing in the stock trading basics.
As history has shown during the late 1990s (with the dotcom crash), there are risks involved in the stock market. Essentially, stocks (value) can go up or down depending on the performance of the company. This means that the direction it will take dictates the amount of wealth you make or lose.
However, learning the stock trading basics will help to protect your investments against market crashes. By educating yourself with the stock trading basics you begin to understand where you are placing your money and will be able to move it accordingly.
Regardless whether you are involved in the stock market or not, you may have heard the phrase “trading stocks” at least one time. When you learn the stock trading basics, you will understand that trading is not taken in the conventional sense like you trade bananas for apples.
In the stock market trading essentially means that you are buying and selling commodities. This financial market jargon relates to the way that stocks are allowed to circulate, like how a billion shares get traded in one day.
The beauty of knowing the stock trading basics is that you can be assured that all stocks traded are handled consistently. This means that regardless whether you are trading 100 shares or 100,000 shares, the same type of documentation, care, and technical efficiency will go into it.
This is the marvel of the stock market wherein you don’t have to know every details of the transaction, only the stock trading basics. Knowing how the market works will already allow you to make sound decisions on trading stocks.
Stock trading methods
Part of the stock trading basics is to know the methods you can use to buy or sell stocks. Essentially, shares can be traded either from the exchange floor or electronically. It is important therefore to understand how both methods work.
For those who do not know the stock trading basics, the image that they have of an exchange floor is that shown in movies or television. The stock trading basics shows you the basic steps involved in a simple stock trade:
a. Tell the broker the number of shares you want to buy for a specific company
b. The order department of the broker sends it to the floor clerk in the exchange
c. One of the floor traders will look for another floor trader who is selling the amount of shares you want to buy for the specific company
d. To complete the deal both traders must agree on a price.
e. You will receive a confirmation notice in the mail after a few days.
This is how a simple trade is completed on the exchange floor.
There are some stock exchanges that handle their volume electronically completely like the NASDAQ while others trade electronically only partially like the NYSE. Essentially electronic stock markets make use of multiple computer networks to efficiently match buyers and sellers as opposed to human brokers used on the exchange floor. There is also alot of stock trading software on the market.
If you are aware of your stock trading basics, you will understand that this is undoubtedly a faster and more efficient way to trade. Majority of institutional traders like the pension funds, mutual funds, and others are more inclined to use this type of trading method.
The stock trading basics also teach you that using this method allows you to get confirmation of trades instantaneously. Moreover, greater online control facilitates trading by getting you closer to the market.
Basically having the stock trading basics in your arsenal will give you a better way to handle fluctuations and risks involved in the stock market. Furthermore, if your goal is to create a stable financial future, learning the stock trading basics is a definite must.
And when you are done learning the basics, you can always continue to learn some more in-dept stock trading secrets!