What is Stock Trading? Getting Started with Stock Trading
First Published date: 1. August, 2022Last Updated: 8. December, 2022Fact-checked by Adrian Müller
What is Stock Trading? Getting Started with Stock Trading
Your money keeps losing value when it sits idle. This is why all rich and financially intelligent people invest their money in assets. Stocks are one of the most popular and effective among those. The life stories of some of the wealthiest people in the world can tell you how rewarding stock trading can be.
But what is stock trading exactly? How does one get started? Moreover, stock trading and investing stories are about more than just success. You may have heard about that one friend who put all his earnings in the stock market, lost it, and is now on the verge of homelessness.
Well, that’s how the stock market works. It can make you millions overnight or take away everything you’ve got in a flash. So, how can you be on the winning side? The answer is to gain as much knowledge about stock trading as possible before dipping your toes in these wild waters.
Table of Content
Understanding Stocks and Shares
When a business institution wants to raise capital, they issue stocks. The corporation issues these stocks per its earnings, assets, and potential. Investors or people like you can buy units of this stock. These are what people call shares.Shareholders vs. Owners
Owning a share means you have somewhat of an ownership of the issuing company. Because you own a fraction of the stocks, and the stocks represent the company’s assets and earnings. But owning a part of its stock doesn’t mean you own part of the actual company itself. This is the division of Ownership and Control.
Plus500 is a trusted global brand that offers an easy-to-use trading platform for online traders, alongside access to share trading, crypto and a thorough selection of CFDs.
79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
In other words, a shareholder can’t technically call themselves an owner. An appropriate way to say it would be that they have an ownership interest in the corporation. The corporation respects this interest by granting the investor certain benefits.
What Do Shareholders Get?
A shareholder receives three benefits. Firstly, they receive a portion of the business’s earnings as dividends. So, the more shares of the stock you own, the greater your earnings. Pioneer Natural, Coterra Energy, and Vornado Realty are some of the highest dividend-paying stocks on the S&P 500.
Secondly, you get voting rights at the company meetings. Although, the CEO and other executives are still in charge of making decisions about their business. But you and the other shareholders can vote on various issues, like appointing directors, etc. Voting power also increases with the number of shares you own of the company’s stock.
The third benefit offered to shareholders is what makes stock trading possible. You can sell your shares as your wish. Of course, you have to abide by certain government rules. Again, they exist only for the safety of the investors. Investors can sell their stocks at stock exchanges.
What is Stock Trading?
Stock trading means buying a share of a company’s stock for the short term. The aim is to make a quick profit from selling the share soon. This differs from investing, where the buyer holds onto the share of the stock for long-term gains.
There are two things you can do with money. You can consume it by buying food, clothes, paying the bills, etc. Or you can invest it. Unlike consumption, investments are made with the intention of growth. People get into stock trading because of this inherent desire to grow their money.
Basic Idea Behind Stock Trading
In Stock trading, you buy the shares of a publicly-traded company’s stock when the price is comparatively low. However, via educated assumptions, you know that soon these prices will soar. So, you buy the shares of the stocks at a low price and sell them when the prices rise.
In other words, Stock trading is making money off the rapid price changes of a company’s shares. Of course, sometimes your calculations might be wrong, and you would lose money instead of making it.
Types Of Stock Trading
There are two types of stock trading in practice. First, there is active trading. If you place money on approximately ten stocks per month, you can be considered an active stock trader.
Here you may hold the stocks for a week or two and then sell at an appropriate time. Trading in this manner requires deep knowledge, strategy, experience, and getting crucial information about the market.
Meanwhile, the other popular form of stock trading is day trading. Here, you buy and sell stock shares on the same day.
Day trading relies primarily on observing superficial market trends. It doesn’t require a deeper understanding of the circumstances. The trader aims to make quick money from the daily price changes.
Plus500 is a trusted global brand that offers an easy-to-use trading platform for online traders, alongside access to share trading, crypto and a thorough selection of CFDs.
79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Stock Trading Vs. Investing
Before putting your money on the market, you must understand the difference between stock trading and investing.
The main difference is in the commitment. Investing means you are committing to the corporation for the long term. You want to grow your wealth along with the company. It shows that you genuinely believe in the company’s capability to make money and want it to succeed.
In contrast, stock traders aren’t concerned with any of those. Likewise, investors buy shares of the corporation’s stock following the same steps. But they are not making any commitment. Nor do they care about what the company does. The only aim is to ride the trend and make some short-term profit.
For similar reasons, investors don’t buy many stock shares, nor do they buy frequently. Also, they trade only in long-term positions.
Meanwhile, stock traders buy numerous shares of the stock. The frequency of this purchase might be days or even hours. Also, they invest primarily in short-term positions.
A Step-By-Step Guide To Starting Stock Trading
If you are just starting as a stock trader, the safest option is to advance slowly and simply. Take your time to find the correct broker and get yourself acquainted with the field. Here is a step-by-step account of the process:
Step 1: Getting a Brokerage Account
To buy stocks, you need a brokerage account. It is almost the same as opening a bank account. All investors have separate accounts for trading and typical savings. So, even if you have a savings account with a bank, you have to open a new brokerage account.
You will open this brokerage account with an online broker. Some of the well-known platforms for beginners are Fidelity, Webull, and Interactive brokers. However, feel free to do your research, read several reviews, and come to a decision yourself.
After signing up with an online broker, take some time to get familiar with their interface and tools. Beginners should choose a platform that offers the following:
- An app or user-friendly interface
- Enough educative content
- Shadow investing opportunities
- Bustling community
Award-Winning Trading Brokers:
Rating:
Regulated By:
FCA, CySEC, ASIC, FMA, FSA, FSCA
CySEC (EU), FCA (UK), ASIC (Australia)
BaFin, FCA
Demo Account:
✔ Free
✔ Free
✔ Free
Live Account:
$100
$200
0
Spreads From:
Variable from 0.5 bps
Variable from 1.0 bps in EUR/USD
Variable from 0.4 bps
Selection Of Instruments:
2000+
1000+
17.000+ (FX, Stocks, CFDs, Commodities and more)
Support:
24/7
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Payout:
1 – 3 Days
1 – 3 Days
1 – 3 Days
79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
79% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
Step 2: Put Up Stakes You Can Afford
When you put money into stock trading, only stake a little at first. It’s only safe for beginners to invest what is left after their monthly essentials, such as rent, groceries, power bills, and other expenses. Maybe you would’ve consumed this extra money in some other non-productive way if you hadn’t invested it in stock trading.
Beginners are at high risk of losing money during those first few attempts at trading. There will be many mistakes, errors, and sometimes just bad luck. These mistakes can make you lose more than half of what you had invested. When that happens, you should wait for the next month to come and, in the meantime, educate yourself further on trading.
Step 3: Placing Different Orders
Placing an order with your stock broker essentially means buying (and selling) stocks. Here, you give your broker specific instructions on which stock share to buy. Such instruction includes the company’s name whose stock they have taken an interest in. You will also specify the stock exchange for this purchase.
The broker acts as an intermediary between you can the trading party. Besides buying the stocks on your behalf, the broker also sells them according to your instruction. You will decide this in the form of a market or limit order.
Market Order
When you place a market order, you tell your broker that they/the platform should buy your specified stock at the best possible price. This means they will buy the stock at whatever price the seller asks. Meanwhile, they will sell it at whatever price the buyer bids.
You will place a market order when you quickly make the trade. The shares in a market order have a narrow spread. This means the difference between the best available buyer’s bid and the asking price is negligible. Market trading is a good option when you are trading a small number of shares.
Limit Order
You can set the price for the stock you want your broker to sell or buy in a limit order. The order only executes if it reaches your set price. Otherwise, there’s no trade.
You can place limit orders on stocks with huge differences between the bid and ask. This is also the way to go if you are dealing with a large number of shares. A limit order lets you hold onto your stocks. It also helps you cut commission and capital gains taxes and save money.
Step 4: Manage Risks
To reduce risks in stock trading, you should take a steady approach. Invest in stocks that pay high dividends. You can also try an ETF (or bundled stocks with one common fund). These bundles contain hundreds or even thousands of stocks from various companies. As a result, the risk of your investments spreads out and dilutes.
Besides managing those financial risks, you should also take care of the legal ones. If your account isn’t tax-advantaged like a 401K or Roth, then the IRS is something you should prepare for. You should learn and abide by rules and tax rates regarding normal brokerage accounts.
Keep a record of all your losses and gains through your brokerage account and fill out the required IRS forms. Being on good terms with the IRS can help you compensate some of your stock-trading losses through tax-loss harvesting.
Get the best information about the most attractive trading platforms to succeed in trading. Have you heard about CFDs or crypto currencies? They may become a real revolution in finance.
We want to make sure you get the right information and choose the right trading platform for you.
Step 5: Practice And Education
You don’t need to lose a lot of money on stock trading before you can learn the craft. Instead, train your investing muscles with proper exercise and enter deep into the arena. Paper trading, online trading games, and Stock market simulators can all help you practice and develop your skills.
The ability to interpret charts and conduct technical analysis is mandatory for aspiring stock traders. For that, you have to invest in education. You can directly take part in various trading courses.
Or, you might watch YouTube videos, attend webinars, follow established traders on their social media, and find other ways to acquire education. Books can also help you to expand your trading knowledge.
Award-Winning Trading Courses:
Asia Forex Mentor
Investors Underground
Bulls on WallStreet
Rating:
Founder:
Ezekiel Chew is the founder of this course. He is a well-known trader and successful businessman.
Nathan Michaud is the one who started this platform. He is a famous stock market trader.
Kunal Desai launched this course. He is an American stock market trader and cryptocurrency investor.
Ideal For:
This course is best for learning day trading.
IU is the best for learning about the stock market.
Bulls on WallStreet is the most satisfactory course to learn trading through live sessions.
Course Material
They have recorded video tutorials with proper explanations of the strategies and techniques that the mentor has used himself.
Provides videos on the basics of trading and advanced education. You also get access to one of the giant chatrooms for traders.
Gives live classes, quizzes, feedback, and an online trading simulator.
Cost:
The standard price for learning on this platform is $997 .
At around $2,700, you will get an annual membership and common course material.
The approximate cost is $1,500 for annual enrollment in the course.
Should You Do Courses For Stock Trading?
If you are a beginner in stock trading, courses can help you much more than you think. The courses equip you with the knowledge to navigate the world of investment and stock trading.
You can learn basic concepts and various strategies from these courses. So, a trading course is recommended if you are a beginner.
One of the major benefits of these courses is exposure. Actual experts give most courses in the field. They are often successful traders who have seen consistent results with their methods and strategies. From interactive sessions and live trading with these mentors, you can learn valuable lessons on stock trading.
Also, trading courses provide adequate educational materials to enrich your knowledge. These may include videos, eBooks, real-time trading sessions, lectures, etc. The mentors can also share with you invaluable insights on market trends.
Asia Forex Mentor, IG Academy, and Trading For Beginner are some of the best platforms for education on stock trading. Remember, the more educated you become, the more your chances of trading success improve.
Award-Winning Trading Courses:
Asia Forex Mentor
Investors Underground
Bulls on WallStreet
Rating:
Founder:
Ezekiel Chew is the founder of this course. He is a well-known trader and successful businessman.
Nathan Michaud is the one who started this platform. He is a famous stock market trader.
Kunal Desai launched this course. He is an American stock market trader and cryptocurrency investor.
Ideal For:
This course is best for learning day trading.
IU is the best for learning about the stock market.
Bulls on WallStreet is the most satisfactory course to learn trading through live sessions.
Course Material
They have recorded video tutorials with proper explanations of the strategies and techniques that the mentor has used himself.
Provides videos on the basics of trading and advanced education. You also get access to one of the giant chatrooms for traders.
Gives live classes, quizzes, feedback, and an online trading simulator.
Cost:
The standard price for learning on this platform is $997 .
At around $2,700, you will get an annual membership and common course material.
The approximate cost is $1,500 for annual enrollment in the course.
Conclusion
There is no doubt that stock trading is one of the most effective ways to grow your money. It seems as if you are doing nothing more than just ordering shares from a mobile app and money just comes rushing in.
That scenario is true for those who have reached that stage through challenging experiences, suffering losses, and gaining education. So, keep working at it, and you will get there too.
About the author – D. Schmidt
I’m a German stock trader who has lived around the world. I travel extensively and believe that my experiences give me a unique perspective on global markets. I love trading! It’s always exciting to see what happens next. My goal is to help people understand the game so they too can enjoy it to the fullest. In this blog, I will share some tips and tricks that helped me along the way.
