Stock trading is a way for people to buy and sell shares in public companies, such as large corporations. The process of buying and selling shares is done through the stock exchange.
These exchanges are specialised markets where you can trade stocks 24/7. Of course, only stocks from large corporations are traded on these exchanges, as small companies have a much harder time going public and listing themselves.
Some common stock exchanges around the world include:
- Australian Securities Exchange (ASX)
- New York Stock Exchange (NYSE)
- NASDAQ (National Association of Securities Dealers Automated Quotation System)
A share is an ownership in a company divided into tiny pieces. So every shareholder owns a percentage of the company: 1% or 2%, etc. The price of shares is determined by their demand at any given moment and what people are willing to pay for it. This ‘market value’ constantly fluctuates according to supply and demand – very similar to the way prices of other commodities fluctuate.
Shares are bought and sold through brokerage firms, specialised businesses that make money from their clients’ transactions by charging commissions to execute trades. To buy or sell shares on the stock market, you must deal with a broker.
But don’t worry – there are plenty of low-cost online brokers that specialise in trading stocks online. There are many different stocks, each with its own rules regarding who can trade them and how they’re traded.
In most cases, traders will use the money made from buying and selling shares to invest elsewhere or add to your savings. Trading is hazardous, so you must understand the basics before you start.
Set up a brokerage account
To set up an account with your brokerage firm, you must provide identification and contact information. Most firms also require that applicants be at least 18 years old and a permanent resident or citizen of the country where they wish to trade.
The minimum deposit requirement is usually $250 because your broker needs to ensure you can afford to lose this amount if things go wrong. Your initial costs include opening the account and trading commissions (about $15 per transaction).
Select the company whose shares you want to purchase
There are thousands of public companies on the stock market, so it’s essential to narrow down your search before looking at different types of stocks. You should select a company whose share price has been on the rise lately or from which governments around the world issue bonds (so-called “blue chip” stocks). See here for companies in which you can invest.
Choose how many shares you would like to buy
When choosing how many shares to buy, make sure you choose an amount within your budget. For beginners, it’s recommended that you start with 100 shares to reduce the impact of any unexpected events on your investment.
Select a stock ticker symbol for the company
Traders and investors use a stock ticker symbol to identify companies whose stocks they are buying or selling. The easiest way to find a company’s stock ticker code is via Google Finance or Yahoo! Finance, which provide up-to-date information about how many people want to buy or sell their stocks at what price. If you already know the name of the company you wish to trade in, do an internet search for “XYZ Company” + “stock symbol”.
Keep an eye on the stock’s price and demand for it
Stock prices fluctuate rapidly as more people buy and sell them. The price of a share constantly changes according to supply and demand. If you see that a company’s stock is going down in value, or fewer people are selling it than buying, this might be an excellent time to purchase shares – if you have enough money left in your brokerage account. Conversely, if you see a stock going up, don’t think twice about selling before everyone else has a chance to jump on board. This kind of opportunistic trading is what makes investment extremely risky – it only takes one prominent investor with deep pockets to swoop in and drive the price sky-high.
Start investing in your chosen stocks
Now that you’ve chosen a company whose shares you wish to buy and the amount of those shares, it’s time to complete your transaction. You can access your account with your brokerage firm online, through a smartphone app or over the phone.