Stock Trading for Beginners
Nov 21st, 2009
People who are looking for advice or opinions about how to practice stock trading come from all experience levels. This section is specifically for those of you who have little to no experience trading the stock market. Before you read any further down the page remember this: never risk more than you can afford to lose in the market. I’m a very conservative person when it comes to personal finance, and it has served me well in the time that I have been trading the market. If your risk tolerance is higher than mine, you can certainly jump in with both feet. Just know that a huge majority of beginning stock traders lose money. The best advice I can give to someone who is new to the markets is to take it slow, and educate yourself as much as possible before devoting a large percentage of your investment capital into stock trading. With that little nugget of wisdom in mind, let’s take a look at the basics of stock trading for beginners.
What does it mean when you purchase a share of stock?
When you purchase a share of stock you are taking partial ownership of that company. There are different types of stock (common, preferred, etc…) each with it’s own set of rights assigned to the owner of the stock. We will be dealing primarily with common stock on this website. In the simplest terms the price of the share of stock is determined by the open market, or stock exchange. If more people want to buy a certain stock, the price goes up. If there is a higher supply of people wanting to sell a stock the price goes down. That is the basic premise the entire stock exchange operates on, supply and demand.
The difference between stock trading and investing
Traditionally the stock market is thought of with an eye towards long term investments. People would buy shares in a company and hold onto those shares for years assuming the value would increase. Stock trading is a much more active pursuit. When someone is a trader they do not concern themselves with the long term outlook of the company whose stocks they are trading. The stock trader is only concerned with whether the price of the stock will go up or down in the near term. This is a very important concept about stock trading beginners should be aware of.
If you are interested in learning how day trading works, I would advise opening a practice stock trading account first. Read as much material on the subject as you can find. Watch some instructional videos on stock trading for beginners. Don’t take anyone’s “hot stocks to buy” as can’t lose money makers, you will lose money on some of your trades. Learning to trade stocks is a skill like anything else in life, you have to put in the time and effort to become more proficient.
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