The Basics of Stock Trading: What Every Beginner Must Know
If you are scared of investing in stock trading, then you are not alone. Many individuals with limited experience in online trading and stock investing are always terrified by the horror stories they hear of how someone can lose up to 50% of their portfolio in a few minutes or seconds!
However, successful stock traders have mastered the art of controlling the market and are rarely affected by sudden fluctuations. The reality is that investing in stocks, just like investing in any other thing, carries a risk, but the risk is worth it if you understand what you are doing.
In fact, successful traders say that investing in the stock market is one of the surefire ways of building your net worth in the long run.
In this article, we discuss some of the basic concepts of stock trading that you need to know.
What is stock trading?
In simple terms, stock trading refers to the buying and selling of shares of a particular company. Technically, if you own stock with a specific company, then you own a fraction of the company. Stock traders buy and sell shares to capitalize on daily price fluctuations.
Most online traders believe that they can make money in the second, minute, hour, day, or month the shares of a particular company are selling low or high instead of buying stocks in a typical blue-chip company and wait to pass them down to their children and grandchildren as inheritance.
Categories of online stock trading
Stock trading can be divided into two broad categories:
- Active trading: A stock trader who places ten or more trades per month is referred to as an active trader. These traders use a simple strategy that relies heavily on timing the stock market to capitalize on short-term events to gain profit.
- Day trading: This refers to a strategy employed by traders who play the “hot potato” game with the stock market. Day traders buy, sell, and close their positions of the same stock in a single trading day.
Furthermore, they don’t care about the inner workings of companies. Their primary aim is to make a profit in the next few minutes, hours, or days based on the price fluctuations of different stocks.
Understanding online stock trading markets: Bull vs. bear markets
The moment you start engaging in online stock trading, you will often come across the terms bull and bear market.
A bear market means that the stock prices are falling across several market indexes. Typically, the falling thresholds vary, but the term will generally be used if the market is experiencing price drops to the tune of 20% or more. A bear market is a sign that investors are pulling back, and the effect on the economy may not be so good.
On the other hand, a bull market refers to a situation where traders are confident of positive economic growth, which could spike good trading times. A bull market is a good sign, and in most cases, an average bull market lasts longer than an average bear market. This is the primary reason why most people believe that investing in stocks is always a good idea.