May 26: The Stock Market: The Basics of Stock Trading

by David Jenyns on May 26, 2007

Learning the basic principles of the stock market can be a daunting task when not given the tools in order to properly learn about the stock market. Once you know about the vast amount of tools available to you, the lay investor, and the less pressure you will feel as you embark on the stock trading journey.

As an investor, you must analyze the essentials of investing in stocks by examining the following questions that determine the fundamentals of any given stock for a certain company.

· How much have other investors paid for one stock?

· How much are investors likely to pay for one stock in the future?

· What details will change the investors’ perspective about the stock?

Through proper inquiry of these questions, you, the investor, will have the tools to make an educated decision about the stock you are planning to purchase.

As an investor, be prepared to rank the return expectations on the stocks that you are planning to buy. For example, if you are planning on buying three different stocks from three different companies, you must estimate how much money you feel that you would earn from each. After you have your estimation, you need to determine if it is logical to purchase these stocks. Pending that you will earn at least 20% more than you invested, it is probably a good investment, therefore, you should consider buying stock in that company.

Once you have efficiently analyzed all of the stock options that interest you, it is time to choose the stocks that best meet your needs for a secure financial future. This is most easily done by keeping a running record of each stock that you feel is a good, virtually risk-free investment. Then, when you are ready to invest, you will have notes to compare in order to decide what option is best for your situation at that time.

Now that you have purchased some stocks that you feel will help to advance your financial future, you need to learn about stock trading. If you feel that your stock is not exactly producing the return you had hoped for, then you may want to consider trading in your stock. Stock trading is great because if you purchase a stock that you are dissatisfied with, then you may want to consider trading it for a stock that you will be more satisfying to your financial needs. In order to simplify the explanation of stock trading, it is simply trading in your current stock for another stock that will produce a higher return rate.

There are two ways in which stock trading can occur. The first method is on the exchange floor, which constitutes images of movies and television portraying how the stock market works with thousands of people rushing around and yelling in an environment of total chaos. Although the chaos occurs, at the end of the day, all trading options are worked out and the employees must get ready for the next day. More simplistically, what takes place is you want to buy 100 shares from Company X so your broker, the person who makes your stock purchases for you, sends your order to their floor clerk, the person that processes your stock order, on Wall Street. The floor clerk communicates with one of Company X’s floor clerks to determine who would like to sell 100 shares of Company X.

Once determined, Company X’s floor clerk and the floor clerk of the person wanting to sell 100 shares to you set a price for the shares. This price is communicated back to your broker who finally notifies you with the final price for 100 shares of Company X. Once you tell your broker that the final price is acceptable, the shares of Company X will be purchased and you will receive confirmation in the mail in about two weeks.

The second method is much less complicated because it is done electronically through computer systems which are much faster as well as more efficient. The buyer must still obtain a broker because the public does not have access to Wall Street’s investment programs, however, once purchased, the buyer usually receives instant confirmation of bought shares via email and the transaction is complete.

No matter how you intend to purchase shares of any particular company, the most important task you, as an investor has, is choosing the right stock that will fulfill your future financial goals.

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