The article you are reading is not just a guide to trading stocks with standard info and general issues to be discussed. Our mission is to show you how to trade stocks online with just a few steps. Not only will you know the difference between a stock trader and investor, but also find out what actually stock trading is and how it works.
Most beginners are generally misled by a typical caricature that depicts hordes of stock traders shouting out "buy" or "sell" in front of a huge monitor like those from movies about Wall Street. It does not always mean stock trading as it is.
Besides, not every person, who deals with selling or trading stocks, is actually a trader. All stock market participants represent two different camps: traders and investors. Keep on reading to find out the difference between these two camps.
What Is a Stock?
Before we dive deep into details, terms, and definitions, let's clarify what a stock is. Make sure you understand how the instrument acts on the market and what benefits it may deliver out of the box.
So, a stock is not just a physical sheet of paper issued by a company. It is an investment in a particular business. When you buy a stock, you also buy a share of the enterprise. In other words, you owe that share as well as the part of the company itself. That is why experts generally associate stocks with "equity", considering a stockholder gets a tiny part of the company.
Price is a major element of stock. It is the only thing that matters for both investors and traders. The better a company is doing, the higher the stock price.
Example: let's say, Apple has just rolled out another smartphone that is about to become the bestseller. Sales grow along with the company's stock price. It means increased income for those who already have Apple stocks.
At this point, we can observe the difference between investors and stock traders.
Stock Traders Vs Investors
Considering the example above, there are two ways stockholders may act:
- Keep stocks to get higher monthly or yearly commissions.
- Sell stocks to benefit from the difference between the initial and selling stock price.
If you opt for the first variant, you may consider yourself an investor. If the second option is your match, you are a stock trader.
However, stock prices may drop down if the company is doing badly or the financial crisis occurs. Besides, other factors may also affect the price including geopolitical, social, and other situations. Learn more how to trade on a falling market.
As a future stock trader, you need to clearly understand possible risks.
Stock Trading Pros:
- Potentially high profits for both traders and investors.
- Easy to figure out a strong company with stock prices likely to go up.
Stock Trading Cons:
- Stocks are not diversified. If a company crashes down, so will the asset price, which means huge financial losses.
Now when you know some basics, we can dive deeper and learn how to trade stocks in reality.
What Does Stock Trading Mean?
Stock trading is a process of buying and selling stocks. The main idea here is to capitalize and benefit from daily price fluctuation. This mainly refers to short-term trading strategies. Instead of buying stocks in a blue-chip enterprise and keeping them for a long time (years or even decades), day traders try to make a couple of bucks within the next few minutes, hours, or days.
People can trade stocks in two different ways:
- So-called "floor trading" is trading at the live exchange similar to Wall Street. Here we have a broker who follows your commands to buy or sell a particular stock. If the deal is found, they send a clerk to negotiate the price with the trader, while you get shares after they agree on the price.
- Online trading is a simpler and more flexible alternative to floor trading. You will also need to find a broker. But the key feature is that you access all trading instruments from a single online platform without the need to leave your home or office.
Needless to say, online trading is the best option, especially for those who are new to the financial market and stock trading. You can trade from any location whenever you want. All you need is to choose the way you are going to trade stocks.
Stock Trading Types
The way you are going to trade stocks will eventually define your general trading strategy. In this particular case, you will have two major options:
- Day Trading – the strategy is pretty simple. It is the same as playing "hot potatoes". You will have to open and close numerous positions for the same stock within the next few hours or even minutes.
- Active Trading – the strategy considers selling about 10 stocks per month. This method generally relies on market timing. You will need to use short-term events to understand the price movement in the nearest future. This is where technical analysis and trading indicators are vital.
Now, you are ready to get started.
3 Simple Steps to Trade Stocks
Before we start, make sure you have set the right trading goals. They will let you stay focused and stick to the chosen trading type. To enter the stock market, you will need:
Step 1 – Choose a Broker
This is a crucial and probably most challenging step for every beginner. With so many offers on the web, selecting a trusted broker looks daunting. To choose the best match, keep an eye on the following features:
- Good trading conditions.
- Advanced trading platform.
- Guarantees and Securities.
- Bonuses and special deals.
- Wide range of trading instruments.
With MTrading, you will experience secure and beneficiary trading despite the strategy or method. We offer great trading conditions in addition to our state-of-the-art responsive platform, and 20+ instruments to trade including stocks and CFDs.
Step 2 – Open a Demo Account
Don't worry. It is absolutely free. No credit card or billing info required. It is your chance to test the trading strategy under real-market conditions with all tools delivered by the broker. A demo account is a risk-free way to try your skills and gain the necessary knowledge about the stock market.