Stock trading continues to be at the forefront of investments and speculations in the financial market. Numerous movies and pop culture references have elevated the concept of stock trading to a cult-like status among those who dream big. Of course, there is money in the financial markets, but to get a piece of the pie, you should know what you are dealing with. Only the very best traders make it big in the stock markets, as buying and selling shares is a mystery that has trumped even the brightest of minds. In this stock trading 101, let us shed some light into what Can you indulge in buying and selling shares for a profitable stock trading experience? Read on to learn how to become a professional stock trader today!
Up until a couple of decades ago, stock trading was confined to a wealthy few. Actual ownership of shares was only possible if you had deep pockets, access to a broker, and of course, a sense of how the markets performed. All that changed when retail investors started arriving with their smaller funds, and even the technology played a pivotal role in directing the market into its present-day avatar. Today, we can see that even a Forex CFD broker offers several CFD and futures products on the most popular shares and indices traded in global exchanges across the world.
Stock trading can be broadly classified into two, according to the type of trading strategy followed by the investor. The first type is those that own stock or buy a collection of shares for the long haul, which gives them part ownership of the company that the shares represent. Such ownership grants them several perks, such as voting rights, dividend payments, and the ability to increase their shareholdings or transfer rights/sell off their shares at their convenience.
The second category comprises of speculators, who speculate on the movement of a share price. Of course, they can either buy or sell the actual shares, or trade any of their derivatives in the form of futures, options, or CFDs. These are short term traders, who usually don't have ownership of the company (unless they buy the actual physical stocks) and forego the benefits that come with stock ownership. Nevertheless, speculators can take advantage of the lower costs and higher profit potential to profit from the share price activity, thereby offering more freedom than the conventional ownership model.
As a trader, you must have a clear idea about your investment goals. Is capital appreciation your primary motive, or are you looking for taking advantage of the price action? Do you wish to receive dividends/income, or are you more comfortable with what you can make in a day? Your trading strategy is dependent on your investment goals, which can have a sizeable impact on your choice of a trading platform. Beginner traders should feel more comfortable with trading stock derivatives such as CFDs, as it does not expose them to the risks of high capital requirement or other legal hassles of ownership. However, there are risks such as losses due to high margins, price variations, and in general, a lack of awareness of the fundamental and technical factors that affect the price of a stock. Therefore, be careful while defining your investment goals, especially with an eye towards your future outlook. You can either choose stock trading as your career or use it as a passive investment strategy.
Finding a stockbroker can be a difficult ask for beginner traders, especially if you are planning on starting with small trading capital. The rules of trading do specify that stock traders are required to hold a minimum margin at a broker, but the truth is, most traders look to start small without investing all they have into the market. Therefore, the best bet is to find an online stock CFD broker that offers access to an exhaustive collection of stocks from a market or exchange that you wish to access. Most common Forex brokers offer access to the US and European stock exchanges through futures or CFD contracts, but some companies offer a selection of shares from global exchanges, in a bid to attract a global trading clientele.
These brokers will also provide a tailor-made trading platform, where you can perform a wide variety of technical analysis of the instruments through in-built tools and indicators. We have come across brokers that offer a proprietary interface designed in-house to offer several unique functionalities for their clients. In other cases, popular third-party Forex trading software from MetaQuotes (the MT4 and MT5), and cTrader provide the option to trade stocks alongside Forex and other CFD products. Therefore, you can always choose a platform and broker that satisfies your trading requirements.
Nothing is guaranteed in stock market trading. The probability of wins and losses lies in your skills and expertise to interpret how the market responds to any given event. Therefore, if you want to win in stock trading, you will have to put in the effort by doing proper research, evaluating the market conditions, and developing a trading strategy that reads the market for what it is.