Stock Trading Tutorial: The Basics

If you are brand new to stock trading there is a heap of information to go over before diving into the actual trading. This stock trading tutorial aims to put as much of that information in one place as possible. We are going to go from the basics about the stock market all the way to executing a stock trade with more advanced order types.

The first thing to realize about trading stock is what that actually entails. When you buy a stock you are actually purchasing a part of the company. These shares will give you certain rights including voting rights in some cases. Sometimes the companies will pay out profits in the form of dividends, and sometimes all of the profits are reinvested into the company. The bottom line is that you are purchasing more than just a piece of paper, you are investing in a company.

Whether or not you care about the long term outlook of the company is another topic entirely. If you are entering the stock market with a “buy and hold” investment strategy, you will obviously want to purchase shares of a company that you think will make money and grow over the time period that you will own the stock. We like to refer to this strategy as investing rather than stock trading. Stock trading traditionally is likened to day trading. With this method of trading on the market you are unconcerned about how the company will fare down the road, and more concerned with what the price of the stock will do in the short term. Short term can mean anything from a few weeks to as short a time frame as a few minutes. That is one of the key points in this stock trading tutorial: there is a big difference between stock trading and stock investing.

With the prevalence of electronic trading in todays markets almost anyone can enter the stock market. The days of only the rich “having a portfolio” are gone. It is simple to open up a stock trading account online and begin playing the market. Doing so without properly educating yourself is a sure fire recipe for failure. The best thing a budding stock trader can do is to read as much information about the market before actually buying a single share of stock.

Buying stocks comes with a certain amount of risk. As many people saw at the end of the dot com bubble and again in 2008, stocks rising in price is far from a certainty. Historic averages have shown that investing in stocks has returned roughly 10% per year. This is a much greater return than bonds or CDs or traditional savings accounts. This is one of the reasons that stock trading is a very intriguing proposition for your average investor. Just remember that greater rewards are usually had by vehicles with greater risk. Stocks are no exception. If a company goes bankrupt you will probably lose everything you have invested in that company.

With a little background about stock trading you are ready to open a stock trading demo account and test the waters. Our next article will look into some of the options you have for choosing an online broker and start getting into the mechanics of making trades.