The stock market can be intimidating for those just learning about stock trading. However, it’s not as complicated as it seems, and once you understand how it works you’ll be able to make profitable stock-trading decisions. Here we discuss everything you need to know to better understand stock trading, including what the stock market is, why stock prices rise and fall, and how to get started investing in stocks.
What Are Stocks?
Stocks are a financial vehicle that represents an investor’s legal ownership in an organization. Investors gain this ownership by purchasing shares of the company. Organizations allow investors to purchase shares in their companies in order to raise money and grow their businesses.
There are two primary types of stocks:
- Common stocks: This type of stock gives the stockholder a proportionate share of the organization’s losses and profits.
- Preferred stocks: Preferred stocks give the stockholder only the predetermined amount of the organization’s profits and losses, known as a dividend.
What Is Stock Trading?
Stock trading is when a person buys and sells stocks at regular intervals in an attempt to make a profit through timing the market. Stock traders share a common goal of capitalizing on short-term market events in order to make a profit on selling and buying stocks. Day traders are stock traders who buy and sell stocks several times a day, whereas active traders are those who make at least 10 trades per month.
Why Do Stock Prices Rise and Fall?
Stock prices regularly rise and fall, sometimes on an hourly or daily basis. The primary reason for stock price changes is the supply and demand for shares. When more people want to buy a stock, the price will rise. If more people want to sell the stock rather than buy it, the price of the stock will go down.
A stock’s value is also based on what investors believe the company is worth. Many investors base their analysis of a company’s worth on projected earnings rather than what the company has actually earned in capital. For this reason, stock prices are highly speculative and can fluctuate regularly.
How to Get Started Investing in Stocks
The following are steps you can take to get started in stock trading:
- Invest in stock market education. It’s important to fully understand how the stock market works before beginning to invest. There are several free educational resources that can teach you how to trade stocks and the ins and outs of the stock market.
- Open a brokerage account. Most stock traders have a brokerage account with an online broker. The broker you choose can offer you tools and support throughout the course of your stock trading career.
- Research. It’s essential to research the companies you want to buy stock from to fully understand your potential for making a profit from the company’s stock. Look at the company’s financial records and management to get a good idea of where the company is headed.
Stock trading can be highly lucrative when you know what you’re doing. Taking the time to research and understand the stock market will ensure you’re equipped when you start stock trading.