Stock trading is buying and selling shares on a stock exchange. Since the stock market is a place where you can buy a portion of your share of ownership in a company, once a purchase is made, the investor becomes a partial owner of the company. Returns to a stockholder take the form mainly of capital gains and dividends. Capital gains result when the price of the stock increases, and dividends are precisely parts of the company’s profits that are reserved for distribution to clients.
Importance of Trading Account
Before you can get into any trade, you will have to open trading account. The trading accounts connect you and the stock market, indeed, allowing you to do all those activities: ordering trades, monitoring the performance of trades, and managing the portfolio directly. Trade accounts are mainly for buying and selling company securities. Bank accounts, on the other hand, have nothing in common with trading activities.
Introduction to Stock Trading: What You Will Need to Know
Stock trading refers to buying and selling shares on a stock market. One can buy stocks, thus becoming a part-owner of that company. Two ways usually available for an investor to reap profits from stocks are when the prices of the stock appreciate (capital gains) or when they receive profit sharing (dividends). Capital gains refer to when the price of a stock rises, while dividends are the amounts of profits of companies that the company reserves to share with the shareholders.
Importance of a Trading Account
So, before any trade is conducted, get your trading accounts straight: These accounts are the link between you and the market, making your dealings simple in terms of buying and selling that which you want, keeping tabs on how well your trade is doing, and maybe even managing your portfolio. Trade accounts are mainly meant for buying and selling company securities; bank accounts, however, have nothing in common with any trading activities.
Steps to Open a Trading Account
Choosing a Broker
The first step involves selecting a stockbroker or brokerage company. There are two types of brokers: full-service brokers and discount brokers. Full-service brokers provide advisory services and research, whereas discount brokers charge low fees but offer limited services.
Filling out an application
You need to fill in the application form either online or offline. This form generally requests personal details, financial information, and trading preferences.
Submitting a document
You will normally need to provide various Identity proofs, Address proofs, Bank details, and a photograph. These documents are required for your identity verification and linking your bank account with your trading account.
Important Features to Take Note of When Opening a Trading Account
Brokerage Charges
Discover the trading and annual maintenance charges, as well as the other transaction costs associated with a brokerage.
Interface
An uncomplicated platform and navigation greatly benefit beginners.
Research and Tools
Brokers often offer courses in educating and analyzing the market that can benefit new traders.
Customer Support
You will have a trading experience when customer service resolves issues.
Regulatory Compliance
Ensure the broker complies with the regulatory statutory authorities.
Basic Terms and Concepts
Bid Price and Ask Price
The bid is normally the price a buyer will pay for something, whereas the ask is the price a seller wants to sell.
Volume
The number of shares traded during a time.
Market Order
Instructions to buy or sell at the market price immediately.
Limit Order
An order to buy or sell at a specified price or better.
Stop Loss
Selling a stock when it reaches a certain price by placing an order that limits possible losses.
Tips for Beginners
Start Small
Begin with a small amount to learn how trading works without exposing yourself to significant risks.
Learn Continuously
Read books, watch tutorials, and follow financial news to improve your knowledge about stock trading.
Avoid Emotional Trading
You can make poor decisions when you take actions due to emotions instead of analysis. Always be data-oriented and based on research.
Diversify Your Portfolio
Investing in multiple sectors and companies can help prevent risks.