Not everyone who is into purchasing and selling stocks is called a stock trader. There are two categories of people who are associated with stock trading known as traders and investors. That is dependent on how frequently they buy or sell their stocks. The first image that comes into our mind when we talk about trading is of Wall Street. Where investors are in the long haul. They buy stocks regularly but do not sell much. Stock market trading is not exactly what we imagine on the New York Stock Exchange, but you can start trading laying your ass on your couch. Be cautious while entering the den of the lion. Never jump into the ring without having any basic knowledge.
What is Stock Trading?
Stock traders purchase and sell their stocks to earn a profit on daily price fluctuation. These traders try their luck and bet that they can earn a few dimes in the next minutes, hour, day, or month. They do not buy stocks to hold them for years.
There are two types of stock trading:
- Active Trading: The investor who purchases a minimum of ten or more than ten stocks in a month is called an active trader. They use strategies to do trading. Their plan depends upon the market timings, and they try to avail advantages of the short-term events (company level or market fluctuation) to earn profit in the falling weeks.
- Day Trading: Under this strategy, investors buy, sell, and close their position of the same stock on the same day. The goal for a day trader is to make a profit of a few dimes in the next few minutes or hours.
How To Trade in Stocks?
If you have come this far, you might be thinking about diving into the market of stock trading. So, read the below-mentioned steps, and you will understand the nitty-gritty of the trading business.
- Open A Brokerage Account
If you want to start market trading, then you first have to open your brokerage account. It is necessary for holding your investments. If you do not have a brokerage account, then you can open it with a few easy clicks. Are you thinking that opening an account means investing? No, it only allows you to invest once you are ready.
- Set A Trading Budget For Yourself
Even if you possess the talent for trading stock, it is not wise to allocate more than 10 per cent of your portfolio to individual stocks. It can risk your saving. But there are a few dos and don’ts of it. Have a look at them:
- Only invest the amount that you can afford to lose. Clear your mind of the notion that more investment means more profit.
- Never use the money which you need to use for the near future. Always invest expenses such as tuition or down payment.
- Always keep a minimum of 10 per cent for your health emergencies. Never drain out your account for trading.
- Learn The Craft Of Using Market Orders And Limit Orders
Once you have opened your brokerage account and have a budget set, you are now ready to use your online broker’s website to place your bets on the stocks. There are two most common categories of order types:
- Market order: Purchase or sell your stocks as soon as possible to get the best available price.
- Limit order: Buy or sell your stock at the particular amount you have set for yourself.
- Practice With A Virtual Trading Account
If you are new to the business of stock trading, then it is best for you to first practice on your virtual trading account. Many online stock brokers offer such accounts to new-bees. Brokers such as TD Ameritrade and Interactive Brokers offer virtual trading.
- Measure Your Returns Against An Apt Benchmark
Measuring your returns is the key for any trader. That is not only for the rookies but also for experienced as well as serious traders. If they are unable to outperform the benchmark, then they should invest in low-cost mutual funds or ETF.
- Keep Your Perspective
Never think that a successful trader will always find out about the next great breakout before other traders. Great investments continuously deliver value to the shareholder for years. Thus, it is a good argument for treating active investments and not jump off the cliff for quick riches.
How To Survive Stock Trading?
Follow the below-mentioned tips shared by experts if you desire to survive in the business of stock market trading:
- Always ignore ‘hot tips’. In most cases, these are rumours to hype up a stock.
- Keep a good record for IRS. The advantage of this is that the loser investments can be used to pay off your taxes paid on your income.
- Always choose your stock broker wisely. Never just fall for any broker.
No matter if you are a rookie or an expert in stock market trading, you need to keep your mind alert at every moment. You need to follow a few dos and don’ts of the business. Never hitch a ride in a hurry if you desire to make long-term profits and never invest expenses that you cannot afford to lose.