Learning how to trade on the stock market works hand in hand with knowing the different factors that affect stock prices. Some of these factors include stock market trends, economic and market indicators, and company financials. Moreover, you must also acknowledge the risk that comes with knowing how to trade stocks.
Identifying the stock market categories that suit your needs is extremely important as well. Trading stocks are quite a popular investment option currently for new and existing traders. Therefore, by educating yourself is the best approach before embarking on the stock trading journey. Although there is risk involved, always remember that significant risk means big rewards.
How best can we describe stocks first of all?
A stock is a kind of security that represents part ownership of a corporation’s earnings and assets.
What happens is that, when a company needs funds to expand its operations.
It goes through a process called Initial Public Offering (IPO) of stock which is mainly going public as an organization.
How does trading on the stock market work?
What makes the stock market is the co-existence of buyers and sellers. What these buyers and sellers do is current trade shares that have already been issued. Sold by an investor and bought by another. Most of the stock trading that takes place does not affect the actual company that is being traded.
How do you become a stock trader?
Everyone has the potential to become a stock trader. All it takes is adequate initial capital, time to trade and a reliable trading platform or a trustworthy broker of your choice. It is essential that you decide and establish from the beginning, the time and dedication you are willing to invest into stock trading. How much risk are you prepared to take? If you decide that you want to test the waters and see how it goes. I suggest that you keep your full-time job, trade stocks part time and use a stockbroker
for better results.
There are different services brokers can offer you depending on your level of involvement. Discretionary services permit the stock broker to buy and sell stocks for you as he sees best. Advisory services allow a stockbroker to guide and advise you and only trade when you allow them to. Execution services alone to enable the broker to trade as per your instructions.
How to trade on the stock market by yourself
First of all, due to how often the stock prices change constantly, there are some ways that you can buy and sell stocks to gain an advantage. These are :
Placing a limit order
This option allows you to customize your trade as you want it. In this case, you set a limit price, which means that when a stock reaches that price only then will it be bought or sold automatically. If the cost of a stock goes up or down from that set price, then just part of the shares will be traded.
In this case, trades are instant you buy shares with the current price, or you sell them at the best price available. One thing to note about the market order is that you cannot control the costs you want to buy or sell the stocks the market decides that.
Stop market orders
These trades take place immediately as the price is agreed.
Stop limit orders
These trades are also customization friendly. An activation price is set, and as that value is reached it turns into a limit order
and the stock is sold or bought.
The determinant of stock price
Before you can start trading on the stock market, you need to know what determines the stock price. For the most part, the stock price is determined by supply and demand. Which means if for some reason a stock is in high demand or very popular, its price will increase accordingly.
Now here are some crucial steps in learning how to trade on the stock market.
The first step is to identify and establish your targets.
The first thing you need to make sure you know when learning how to trade on the stock market is where you are going! What is your intended final destination so to speak? That ultimately depends on your age, what your income is, your short-term financial requirements as well as long-term. When you have prioritized your goals and set a time on when they should be met, you can now move on to selecting the best stock investment that will help you to achieve those goals.
How much risk can you take?
When investing in the stock market, every stock trader has their risk tolerance which is different from the next trader. Therefore it is essential to establish at an early stage what your main concerns are. Is taxation? Liquidity? Inflation? Or all of those? Then you need to concentrate on the stocks that will best fight the risk associated with your concerns.
Have a stable stock portfolio goal.
A short and more exclusive stock portfolio allows you to analyze and understand each stock in detail. Usually, a collection of about 10 to 20 high- researched stocks is ideal for a reasonably new stock market trader. This is because it also allows you to carry out the necessary investigation of the company’s financial status, as well as to identify important risk factors.
Make it a priority to learn the market trading success basics
Before you make your first stock market trade, make sure you have fully grasped the underlying stock trading concepts. This is important to try and eliminate failure as much as possible.
Metrics of a stock market trader
As a stock trader among others, you must also be able to recognize terms used when evaluating stocks. For example terms like compound annual growth rate ( CAGR), return on equity (ROE) and so on.
You must know your stock market orders
The execution of trades depends on the kind of stock market trades you decide to make. Therefore investors must be familiar with the types of stock market trades and not just the common market orders.
You must know your investment account type
Most investors make use of the traditional cash account. However, some other options include margin accounts, which are high risk because they allow you to buy stocks with borrowed money.
Important! Know where to buy your stocks
There are different ways to purchase shares, online or through a broker. Nevertheless using a broker will cost you execution fees. However with the technological developments buying stocks on an online trading platform may be more straightforward.
Before diving into the stock market trading, make it a priority to think about what you would like to achieve. Think about how you would like to accomplish those goals and what it will take to accomplish them. Make sure to stay within your risk tolerance as well.
Decide how much time you are willing to dedicate to your stock trading, be it part-time or full time. All in all, considering all these factors before-hand will save you from the trial and error phase. Just do it right once and enjoy the ride!