Basic Investing 101

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Basic stock investing 101 just helps you to understand the terminology of the stock market and a few tips to make it easier. In order to make a trade with comfort, you have to know that you wrote the trade properly and all the potential dangers involved.

Types

  • Learn the types of trades. Market trades buy or sell the stock at the going price. Limit orders buy or sell it at a specific price, but if the market price is better, you get that price. Stop limit orders are protective. They sell part or all your holdings when the price drops to a certain level. A buy stop limit is above market price and protects the person that sells short.

Function

  • Use the orders for different purposes. When you're in a volatile market but have limited funds, or deal in penny stock, use a limit order. If the stock never hits the price in the order, you don't get the stock or sell the stock. This is one pitfall. Use several different trades when you use a stop limit to protect a profit. If the stock price doubled, use one to recoup your initial investment if the price drops. Play around with the rest for your profit.

Considerations

  • Decide how aggressive you want to become. Most people learning the basics of investing don't use short orders, but may in the future. A short sell means you sell and anticipate a price drop where you can get cheaper stock to fill the order. When you sell shares you don't own but intend to buy it at a cheaper price for delivery, it's called a naked short order.

Misconceptions

  • Frazzled fast-paced trading isn't always part of investing. Most people buy stocks and hold them for the long haul. This type of investor is the long-term investor. Short-term traders, often referred to as day traders, buy and sell frequently and often use price graphs as their guide.

Theories/Speculation

  • Choose companies whose products you like when you buy stock. Some of the leading mutual fund managers use this theory when they buy stock for their funds. They include it as part of their basic stock investing 101 techniques. Chances are, if you like the product, many other people do too. Check out the company from the consumer's point of view.

Warning

  • Know when you should sell. The hardest part of any basic stock investing 101 program is knowing when to sell. Take the mystery and stress out of it. Check out the price of the stock and it's dips. Decide on an exit price if it starts to drop before you even buy. In addition, if you make a profit, you might choose to sell off enough to recoup your initial investment. This takes the stress out of deciding when to sell.

Expert Insight

  • Practice trading with a hypothetical account. See what happens when you set your parameters to buy and sell. When you feel comfortable, open a real stock market account.

  • Photo Credit Stock.xchng: Neil Gould (ngould), Tommy Johansen (BlueVibe), Nick Benjaminsz (KillR-B), ilker (ilco), T. Al Nakib (OmirOnia), Moi Cody (katagaci), Simon Stratford (Simonok), Piotr Bizior (bizior)
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