The stock market is a highly efficient process that facilitates the buying and selling of securities. Thanks to extensive computer networks, most trading is carried out with little or no human intervention. It becomes incredibly easy to sell 100 shares just as easily as selling 10,000 shares. Keep reading for an introduction on how to make a living from trading in the stock market.
Basics
Stock trading: you hear this phrase often, although it is inaccurate – you don’t trade stocks like baseball cards. (“I will trade 100 shares of IBM for 100 shares of Intel.”) “Trading” means buying and selling in the language of financial markets. How the system works to accommodate a billion shares trading in a single day is a mystery to most people. Undoubtedly, our financial markets are wonders of technological efficiency.
Investing is more than just a numbers game, but you won’t get past a lot of numbers if you want to understand what is happening in the market or with your stock. A stock market quote, which you can find in the daily newspaper or online, is the simplest set of numbers that service providers update regularly.
When it comes to buying and selling stocks, exchanges behave more like antique markets than centers of financial evolution. This is why you need to understand supply and demand prices. Unlike most things you buy, both the buyer and the seller determine stock prices. The buyer sets the price they will pay for the stock – that is the “bid price.” The seller also has a price – that is the “ask price.”
Stock Prices
Stock prices, and the reasons for their rise and fall, may seem like another mystery. You will hear about the impact of earnings on stock prices or the economy or the credit market. While all these factors influence price changes, they have little direct effect on prices. What these factors and others do is change the balance of supply and demand.
Buying low and selling high (or overweighting) is the ultimate guide to successful stock investing. It is also the exact opposite of what many investors do. It’s not that investors begin to do this, but often they use price, particularly price movement, as a sole signal for buying or selling. Stocks that have recently risen, especially those that have garnered a lot of attention, often attract more buyers. Clearly, this pushes prices up.
The number of investors choosing to use an online-based broker for their trading is increasing, which often means they need to know exactly what type of order they want to enter. You can use a variety of buy or sell orders to gain more control over the trade than just a simple market order. Some orders restrict the trade by price, while others restrict it by time.
Stop-Loss Orders
When your favorite stock drops significantly, a stop-loss order that you have with your broker can help mitigate the pain. A stop-loss order instructs your broker to sell the stock when the price reaches a certain point. The goal of a stop-loss order is clear – you want to exit the stock before it drops further.
Trailing stop orders, a type of stop-loss order, can also protect profits and ride the stock price higher if you are smart.
Different Markets
If your image of the stock market is a spacious room filled with people wearing colorful coats and jackets running in apparent chaos, you might be thinking of the New York Stock Exchange. The New York Stock Exchange is the oldest major exchange in the United States, which most people associate with Wall Street.
The Stock Exchange
Nasdaq is a computer-based stock exchange where buyers and sellers meet electronically. Although computers track all orders, there is a significant human presence in Nasdaq, which is the market maker. Unlike the New York Stock Exchange and some other smaller exchanges, there is no actual trading floor in Nasdaq.
Today, there are no longer crowds of people shouting on the floor of the once-respected New York Stock Exchange, as electronic trading has replaced most of the human work there as well.
Trading Scams
Don’t fall victim to an investment scam. It’s easier than you think for fraudsters to deceive you and take your hard-earned money if you let your guard down. Investment scams come in many forms, and the internet has made it easier and faster for these predators to take advantage of investors lured by the possibility of an “insider deal.”
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Source: https://www.thebalancemoney.com/the-basics-of-trading-stocks-3141298
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