How Stock Trading Works
When a company wants to raise money, it can either borrow it or raise it from investors by issuing stocks in the company. As explained by the experts at Learn-To-Trade.com, when investors purchase a stock from any one of the major stock market indices, they are buying a part of the company.
While many investors do not actually think of themselves as part owners in a company, the fact is that they are. And it is that ownership that helps give a stock its value. If the stock wasn’t attached to the company’s performance, it wouldn’t have any value.
But because a stock’s value is correlated to a company’s performance, other investors are willing to pay more or less for the stock. If a company’s earnings (profits) increase, stockholders share in those profits; on the other hand, if a company’s earnings fall, so too does the price of a stock. Sell your stock when it is trading for more than the price you paid and you make money; sell the stock on a day when it’s trading for less than what you paid and you take a loss.
Stock trading takes place either electronically or on an exchange floor. The most popular image of a stock market is that of an exchange floor, where hundreds of brokers shout and wave their arms. When it comes to stock trading on an exchange floor, an investor tells their broker they want to place a “buy” order for 100 shares of a particular company. The broker then sends a purchase order to their clerk at the exchange, who finds another trader who wants to sell 100 shares. The two agree upon a price and the trade is done.
Stock trading on an electronic format is an entirely different process. Based in New York City, the NASDAQ is the largest stock trading exchange in the United States. Investors can access the NASDAQ through an online brokerage account. Using vast computer networks, stock trading on electronic exchanges is both fast and efficient, with a transaction normally occurring in just a few seconds. A lot of individual investors like stock trading on electronic exchanges because they are in total control of the trade and because it puts them one step closer to the stock market.
Stock Trading for Beginners
People seeking greater returns on their savings than what the banks provide (in interest) are drawn to the stock market because of its unlimited potential for creating wealth. The main indices for stock trading in the U.S are the New York Stock Exchange (NYSE) and the NASDAQ. Through these major indices, investors can trade stocks in thousands of companies based in the U.S. and around the world.
When it comes to stock trading, the general rule is the higher the risk, the greater the potential return. It’s also important to remember that there is a higher risk of losing your initial investment as well.
Taking stock trading courses in Toronto from Learn-To-Trade.com provides investors with in-depth training and techniques aimed to create successful traders. The experienced professionals at Learn-To-Trade.com help investors fully understand and effortlessly navigate the often complex, confusing, and fast-paced financial markets.
Stock market courses in Toronto from Learn-To-Trade.com will teach you a wide variety of stock trading strategies and help you invest with confidence. These strategies include:
Fundamental and Technical Analysis: All stock traders consider which stocks to buy and sell based on either fundamental or technical analysis. Fundamental analysis looks at a company’s financial statements in an effort to predict a trend. Stock traders using this approach focus on the forward-looking picture, while stock traders who use technical analysis believe that chart patterns and past price performance can predict what the future prices will be.
Day Trading: Day trading, or active trading, is a short-term strategy where investors hold a stock for usually just a day or two. Considered one of the most speculative trading strategies, day trading focuses on technical analysis of short-term price movements in an effort to find a quick entry and exit point.
Swing Trading: Swing trading is a stock trading strategy that looks to take advantage of price movements that typically occur over three or four days. Swing traders can either use fundamental or technical analysis to make their decisions since it can take a number of days for a stock to respond enough to a variety of factors to make a profit.
Long-Term Trading: Long-term trading is a buy-and-hold stock trading strategy where an investor holds onto a stock for an undefined period of time. Buy-and-hold trading takes a fundamental approach, where the overall markets provide a solid rate of return over the long run. Long-term trading investors are not as concerned about working out the best entry point as they are buying, holding, and taking advantage of the market’s long-term growth.
Learn these strategies and more from the experts at Learn-To-Trade.com!