How to Learn Stock Market Trading

Imagine being paid by a company without having to work 40 hours a week there. You'd share in the company's prosperity and profits, all while sleeping late and doing whatever pleases you. It may sound like a pipe dream, but it can actually happen when you invest in the stock market. But that scenario can only occur if you understand how the stock market works. Here are a few tips on how you can get started.

Difficulty: Challenging

Instructions

1. Learn what stocks are. Basically, when you own shares of a stock, you own a part of a corporation. As you acquire more shares of stock, your ownership of the company increases. As an owner, you will be entitled to a share of the company's assets and its earnings. Technically, you own a part of all the company's real estate and other property, as well as being entitled to your share of the company's earnings and probably the right to vote your shares.

2. Become an avid reader of the business section of your local daily newspaper. Pay special attention to the area that's devoted to the list of stocks traded on the various markets. Become familiar with the terms that are used and how stocks go up or down every day. A good exercise is to put together a "for instance" portfolio that you can follow each day. Other publications that will add to your education are Investor's Business Daily and The Wall Street Journal. You will find that a subscription to either will be a very good investment.

3. Decide how you plan to trade, either through a live broker or online. Live brokers generally charge much higher commissions when they execute trades for you, but they have access to information that you may find helpful. You can also open an account with a brokerage company online, and you will pay less commission because no "live" broker will physically handle your transaction. Also, while many online brokerage companies now have research available to help you make your decisions, you will not have the luxury of a broker on whom you can rely.

4. Know the forces that cause a stock to go up or down. For instance, the law of supply and demand dictates what you pay or get for a stock when you execute a trade. If demand for the stock is high, the price will rise; but if the reverse is true, it will fall. By the same token, if there is an abundance of stock available at the time of your trade, you will most likely pay less for it than if the stock were in short supply. But that isn't the only reason why a stock's price may fluctuate. So much of the price of a particular stock has to do with news about the company itself. How well you stay informed of the stocks that interest you will determine your success or failure as an investor.

Resources

• More on stock market trading