Stock Trading 101
Stock market trading can be a complicated world of earnings reports, portfolio percentages and performance projections. Many investors choose to employ a stock broker for the purposes of recommending which stocks to purchase and to help them build a portfolio of investments. The more information investors gather about the stock trading process, the better equipped they are to inform brokers of goals and expectations for financial returns.
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Types of Stock
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A stock is more than just a certificate; it's a piece of publicly traded company. When you own a stock, you own a share of a company. There are many varieties of stock that may be purchased and most are based on the size of the company involved. A large-cap stock is purchased from a company with a market capitalization, or financial size, of $9 billion or higher. Small-cap stock is purchased from a company with a market capitalization between $300 million and $2 billion. Stock can be further categorized by the type of company the stock is created from, such as technology stock or energy stock.
Short Term vs. Long Haul
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Stock trading strategies revolve around the length of time you wish to be in the market actually buying and selling stock. According to CNN Money's website, the stock market in the short term looks a lot like a Salem Witch Trial; run by fear, rumor, rumor-based fear and fear-based enthusiasm. The stock market in the long term depends greatly on how a company actually performs in terms of profits and losses. Buying and selling stock requires greater attention to daily company news and earnings projections, while long-term trading looks more at a company's track record for making sound business decisions.
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Buy Low, Sell High
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The old adage, "buy low, sell high" is an oversimplification of the stock trading process. The price of an individual stock does not always weave an accurate tale of the stock's worth. For example, if a company's stock is valued at $300 a share but the earnings report for the company is grim, this stock does not have substantial value. A company with stock valued at only $5 a share, but with an encouraging earnings report, represents much greater value because the company stands to turn a profit, thereby increasing the value of its stock.
Diversify the Portfiolio
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If your goals with stock trading are firmly fixed in the long term, create a diversified stock portfolio composed of stocks from several different industries. This helps you mitigate any damage to your portfolio's value from an economic downturn in one particular sector of the economy. It's also important to avoid panic-based financial decisions if you're investing for the long term. Fluctuations in the market are to be expected. According to CNN Money's website, long-term stock market investment is one of the best ways to save for retirement because stock prices traditionally stay well ahead of inflation. This means the value of your investment is usually well preserved.
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