Essentials Of Stock Trading

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How To Trade Stocks...

The traditional way to trade stocks is to buy and sell actual physical shares. These days, most traders do this via an account with an online broker, and the transactions are all electronic. Besides traditional share dealing, many online brokers offer alternative financial vehicles, providing traders with exposure to stock markets – without having to deal in actual shares.

Equities, stocks and shares - are they all the same thing?
Yes and no! They are inter-related and interchangeable to some extent, but they do have different meanings.

Equity
This is an umbrella term meaning ownership interest and is not restricted to the stock market. For example, one can have 'equity' in real estate, which would be the difference between the current market value of a property and any money owed on it – usually in the form of a mortgage. In the context of trading and investment, equities – or the equity market – are synonymous with the stock market.

Stock
This is the total assets and earnings of a company, including all capital invested or paid into it, of which the 'stockholder' owns a percentage. Most companies offer investors 'common' stock, but a few also offer 'preferred' stock which entitles investors to dividends before they are issued to other shareholders. Some even offer ‘convertible preferred’ stock, providing the shareholder with the option of converting their preferred stock to common stock.

Share
Shares are merely a convenient way of dividing up a company's 'stock' to enable individuals and organizations to have a speculative ownership interest – or 'equity' - in the company. Potential profit is received in 2 ways; either as a percentage of the company profits in the form of a dividend, or via capital appreciation in the value of the shares themselves. Share holders may receive other benefits such as the option to buy additional shares at preferential rates and to vote on key decisions at annual general meetings.


How Does The Stock Market Work?

As you know the stock market is a place where people buy or sell shares of a company. Once a company is branded as a public operated company, it releases shares in terms of stocks so that people can invest in the company. Once you buy the stocks of the company you automatically own a small part of the company. People earn from the company when the company increases in their profit if the company makes loses then also the stocks depreciates. You earn from the stocks in two major ways; you can earn when your stock appreciates and gains value or through dividends. Most companies pay their shareholders dividends from their profits either on quarterly, semi-annually or annual basis depending on the type of stock.


Different Types Of Stocks

The type of stock you buy has a lot to do with how long you will have to wait to get your investment. There are different stocks offered by the public operated companies but there are two major stocks that you will come across in the market.

1. Common Stocks

The common stock is the first major type of stock out there. As mentioned above, buying of company stocks gives you some sense of ownership of the company. When it comes to common stocks the shareholders own voting rights in any shareholders meeting, although this depends on the amount of shares that one has. The shareholders are given the liberty of voting one vote per share. When it comes to earning from the common stocks, you will get dividends although the dividends are not guaranteed by the company. The dividends are calculated in a variable rate. When you invest in this kind of stock, you will receive your dividends after the other preferred shareholders have received their amount in full.

2. Preferred Stocks

These are stocks that give you some degree of ownership although the stocks do not give the shareholders voting rights. The preferred stocks are calculated on a fixed rate. These stocks come with great benefits, for example, you will be paid first before the stock shareholders in an event of liquidation. Since the dividends are calculated on a fixed rate, it is easy for you to get a lot of money by buying many shares in the company. With these stocks the company can buy the stocks back anytime.


How Do Stock Prices Go Up Or Down?

This is a very important question to ask if you want to determine when you will get your investment back. The stocks are unpredictable and they are constantly changing their value but you can still predict how the stocks are trading by looking at the supply and demand concept. This concept dictates that once the demand is high the supply goes high and when the demand goes down the supply goes down. When it comes to stocks, the supply and demand concept work the same way, when the demand for a certain stock is high, that is there are many buyers than sellers the price of the said stock goes up. On the other hand the demand of a stock goes down when there are more sellers than buyers which make the prices of the stock go down.

Factors That Influence the Stock Market

Stocks prices are usually affected by certain factors, directly or indirectly. Some of the factors are predictable and others are not. It is therefore very important for you to know these factors so that you can determine the correct time to trade your stock.

Internal Factors And Unpredictable World Events

The internal factors affect the stocks directly. These are factors that are generated from inside the company and they include; introduction of a new products, mergers of companies, suspension of dividends, fraud, negligence, earning reports and many more. You need to know the internal factors firsthand before investing. When it comes to world events, there are certain events that can adversely influence the value of a stock. Events like war, terrorism, natural disasters like hurricanes. The world events influence the trading of the stocks as the investors look to invest of stocks with less risk. The events may directly or indirectly influence the stocks.
 
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