Stock Trading 101

Your ultimate guide to Stock Trading


1. How much money do I need to start trading?

This will vary depending on your broker, but you should note that there are a few costs to consider after your decision to begin investing. Not only should you anticipate the cost of opening an account, there's also the commission your broker will require as part of the service. This is usually the largest cost you will take on. But before trading begins, many new investors will seek training, which could present a considerable cost, as well. Granted you're entering the market in order to make profit, it would make sense to shop around for a stock trading provider to make sure you're not issuing more than you can bear in commission costs and/or other fees.

2. What is day trading and what's the best time of day to trade?

A "day trader" is one who attempts to buy and trade stocks within a single trading day. Day trading has become increasingly popular as one of the most profitable means of stock trading.

The morning and closing hours of a trading day are usually when stock prices are most volatile. So, for experienced traders, this could be an ideal chance to act quickly and increase profit. But for new investors, trading during the middle of the day might be the best bet. This is because most of the day's trading news has been integrated into prices and there's an overall feeling of stability as investors are plotting their moves for the day's end. Mid-day trading is arguably the best means of meeting your predictions.

3. What should I look for in a stock trading platform?

Sourcing the best stock trading platform for your needs and experience level is crucial to your gross profit. By definition, a trading platform liaises with the trader (you) and your online broker, providing the tools necessary to execute your trades. Be sure that your stock trading platform provides all the necessary quotes and charts you'll need; but, most importantly, make sure that you can easily navigate the interface and find the proper information. A service that does everything, but does it in cluttered fashion, would not be worth the hassle – especially for beginner investors. Other features to look out for include:

Much of becoming a seasoned stock trader is learning from trial and error. Instead of implementing tests on forward periods, backtesting allows traders to use past dates to test new strategies and gauge effectiveness on a simulated scale. Your stock trading provider should have backtesting capability; it's pivotal to maximizing your market gains.
Historical Data:
Long-term wins in the stock market is closely linked to long-term data. Experienced traders understand that the current trend of a business should be looked at in conjunction with broader performance trends to better pinpoint intricacies that go unnoticed with short-term data. It helps knowing where a stock has come from when anticipating where it could be going in the future.
Technical Support:
No matter how seasoned of an investor you might be, you're likely to run into some issues with your trading interface. Seek a provider that understands the seesawing nature of the market and how crucial it is to have issues resolved quickly.

4. How can I best maximize my profits?

The simple answer is to be informed about your stocks' respective markets and stock trading in general. Your focus will vary depending on many factors, but some general pointers to help increase your profits include:

Not putting all your money on the table:
The stock market continuously fluctuates, and as businesses rise and fall in value, there will always be new opportunities to make money. Be wise with your current dollars so that you can take advantage of these future opportunities.
Having a plan:
LThe best way to lose money is to begin trading blindly, not having a clear idea of how you can cut your losses and make profits. Establish a decent roadmap so that you keep unpleasant surprises down.
Managing Emotion:
A large part of managing emotion comes with not overreacting to the actions of others. Be informed, but don't simply follow the crowd. Having a greedy disposition or being prone to panic will likely lessen your chance of achieving long term success. Exercise the discipline and patience that comes with having a plan and knowing what you're doing.
Minimizing Surrounding Costs:
These include commission fees and any other costs associated with your brokerage platform. Be sure to shop around for a provider with reasonable commission fees. Also, be aware that short-term capital gains are oftentimes taxed at a higher rate than long-term transactions, which is yet another reason why patience is a virtue in the world of stock trading.

5. Does online stock trading involve real brokers?

Online trading involves an online broker, which largely replaces the need for a human broker. Unlike traditional stock trading, where you consult with a "real" broker about your investments, you request trades yourself. Many online trading services offer counseling and guidance from human brokers as part of its package, but most of the work will be carried out by the investor using the online interface.

6. What is the difference between market orders and limit orders?

Market orders are the most straightforward orders in stock trading and, for that reason, are where a lot of new investors begin. To place a market order is to sell your shares at the best price or to buy shares at their current price. Market orders typically have lower commission rates than limit orders because of the simplicity and fact that they take effect almost immediately.

Limit orders allow an investor to customize the price at which they buy or sell shares. These orders only take effect if the investor's price is reached. Many investors prefer limit orders over market orders because it allows them more discretion in reading a stock's trends so that they lower the risk of buying too high or selling too low. However, a vice of limit orders is that if the stock falls below your set price, you might only be able to sell some shares or, even worse, none at all.

7. How do I read an online stock quote?

While respective services may contain slightly different information, the chart below outlines what you can expect to see in online stock quotes across the board.

Data Meaning
52-week high and low The highest and lowest the stock's price has been over the past year (52 weeks). Often does not include the previous day's trading.
Close The price the stock closed at in the last trading session.
Net change Usually presented as a dollar amount, this indicates the value change in the stock price from the previous day's closing price.
Bid The price a buyer is willing to pay for a share of the stock.
Ask The price a seller is willing to accept for a share of the stock.
Market Tells you where the stock trades. It might be the New York Stock Exchange, NASDAQ, American Stock Exchange, or markets like the Pink Sheets.
Shares outstanding The number of shares available for shareholders to buy and sell.
Average daily volume The number of shares that trade hands among investors, on average, over a period of time (such as a quarter).
Today's high The highest level the stock traded at during the day.
Today's low The lowest level the stock traded at during the day.
Volume The number of shares that have traded hands during the day.
Market capitalization The total value of the company based on the current stock price.
Price/Earnings ratio A way to determine whether a stock is cheap or expensive, calculated by dividing the current stock price by earnings per share from the last four quarters.

8. Will I be able to trade investments other than stocks through online services?

Yes, but you should check with you respective stock trading service for further details, as multiple investment trades are not standard. Generally speaking, you'll find that many of the leading online brokers allow users to trade ETFS, foreign exchange, bonds and other investments in addition to trading stocks.

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