How does stock trading work?
Basic stock trading for beginners:
Stock trading basics
In order to trade stocks, you will need two things:
Keep in mind, risk with stocks is very high, only gamble with what you are prepared to lose.
Brokers typically charge some sort of commission (a fee for each transaction you place – meaning a charge for each order you buy or sell of stocks). Most of these commissions range from $3-10 dollars per transaction. Check the Broker Comparison for actual costs. Because you have to pay commissions, you need to place sufficiently large orders that enable you to make more money than the commission spent buying and selling stocks.
For example, if you buy a stock that is offered for $100 and your broker commission is $4, the total cost for the stock is $104. Then when you go to sell the stock, say it is now worth $110, you will have to pay the commission fee ($4) so you will only get $106 from the $110 sale. In this example, you bought the stock for $104 and sold for net $106 so you only made $2 on the trade yielding a 2% gain on the original $100 price.
Now say instead we trade ten of the $100 stocks mentioned in the previous example. This time we buy for a total of $1,004, because the stocks cost $100 each, we buy ten, and have to pay the $4 commission. We then sell the stocks for $110 each, then taking out our commission, would yield $1,096. In this case for the ten stocks we made $92 (the difference between proceeds and sales $1,096 - $1,004) yielding $92, or 9.2%, on the purchase or ten stocks for $100 each.
The lesson here is to be careful and be aware of commissions, if you trade too often, with too little amounts, commissions will greatly reduce your profits.
Once you have a brokerage account you be able to buy and sell stocks. This process is very simple, simply input the stock ticker (the small code for the company you want to purchase/sale) and your brokerage should give you a quote what the security is currently trading at. You can find stock tickers on Google Finance, Yahoo Finance, and through most brokers and hundreds of other sites.
Depending on what broker you use, stops and limits will be input slightly differently, but all brokers have the ability to for you to place these orders. If you need help understanding the difference between a limit order or stop order check out the trading basics page. A quick reference is also included at the bottom of this page.
Lastly, do not be intimidated. Stock trading is very similar to gambling, but with better odds because the house does not always win. Stock trading can be a lot of fun and great way to build wealth. Again, trading stocks is risky, make sure you understand what you are buying, and the possible losses, before betting your cash on a part of a company (or any security).
Quick basic reference for markets
Other market basics
Article by Jacob K Lloyd
Published: 2 July 2015
Last updated: 3 July 2015
Starting With Stocks
We are not financial advisors, any investment has great risk, only invest what you can afford to loose., we are not liable for any losses resulting from use of information or conclusions from this site. Starting with Stocks is a division of Jclipse, jclipse.com