Stock Trading Tutorial for Beginner Traders

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Stock means the amount of capital invested in a company. It is not the same as assets or other properties of a business. The capital stock is divided into a number of units called shares of equal value. This is called the face value of the share. Trading refers to the act of exchange of goods or services or both. Hence stock trading means the buying and selling of stocks or shares of a company that is listed on a stock exchange.

A stock exchange is the place where stock trading takes place. Brokerage houses, agents, corporates, banks and financial institutions are commonly involved in stock trading. Stock trading can happen electronically or on the floor. On the floor stock trading On the floor stock trading means trading directly in the stock exchange, meaning the broker/agent has to be present at the stock exchange. Stock trading at the New York Stock Exchange (NYSE) is a site to see. There is chaos all the time. It is the largest stock exchange in the world. Brokerage houses send their brokers to trade in specific stocks.

If you are asking someone to “teach me to trade” you’re in luck. There is a game plan involved for buying and selling of the stocks. Corporates and banks also involve in on the floor stock trading. Electronic Stock Trading In Electronic stock trading stocks are traded electronically. Information technology plays an important role here. Time is of essence. A lot keeps happening every second in the important economies of the world, which in turn affects the stock of a company and therefore technology needs to be up to date. Changes need to be made in software to facilitate free flow of information and trade. Nasdaq, NYSE ACRA and Globex have high defined technologies in place that allow traders to monitor changes and buy and sell by the minute. Banks involve heavily in electronic trading. They can track international stock exchanges and trade from their branches anywhere in the world. Electronic trading has closed the gap of different time zones all around the world. It has facilitated trading 24 hours a day irrespective of where you are located.

Online Stock Trading

Online stock trading is one of the most popular methods of electronic trading. You just need a computer and internet for this. Banks and brokerage houses have taken advantage of information technology. They enable individuals to trade from home or work place. All that needs to be done is opening an account for a fee with any of the banks/financial institutions or brokerage houses. They also provide help and stock tips about which stocks are doing well and which have to be avoided. All information about stock trading is available for free on the internet. The number of online women traders is increasing every year. So any one can just start stock trading from home and make it a lucrative business.

Buying on Fundamentals

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A very successful investor was once asked “how do you make money in the stock market?” Buying on fundamentals. “Simple”, he said. “Buy low and sell high”.

1903 stock certificate of the Baltimore and Oh...
1903 stock certificate of the Baltimore and Ohio Railroad (Photo credit: Wikipedia)

Great advice, if only it were that simple. We all know that in order to make a profit you need to sell your stock at a higher price than you paid for it. But to do that, you have to pick the right stock and get the timing right.

This is where things get a little more difficult. How do you go about picking the right stock? And how do you know when is the right time to buy and when you should sell and close out your position?

One strategy that many successful investors follow is looking for stocks that are particularly undervalued or cheap, relative to the rest of the market. There could be a number of reasons why a company’s shares are cheap. The key thing is to find cheap stocks that are undervalued relative to what they should be be priced at.

If you can find a company with a strong balance sheet, with a good cash position, healthy revenues and decent profits, but with a share price that seems low, then you’ve probably found just such an undervalued stock, in which case it is probably worth investing in.

Ask yourself the question why is the stock priced low. If it’s for some inconsequential reason like a recent management change, a particularly strong competitor, the company not having the latest “hot product” or the sector itself being unfashionable for example, then you could be on to a winner. Whereas if the problems go deeper, such as heavy falls in revenues, profits turning to losses, significant debts, etc, then you are best to steer clear.

If you stick with the fundamentals and buy shares in healthy companies that just happen to be a little under priced right now, you will find that over time things will balance themselves out, the company’s price will get back in line with the market and your portfolio will benefit as a result.

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