It is said that the key to making money is to stay invested. And this is the golden rule for saving and earning money. You certainly do not want to lose money. So the question is what to do to save it and multiply it as well. One of the best solutions to this problem is online stock trading. Yes, you heard it right! Trading in the stock market gives you a golden chance to invest money for future savings and earn from it. Life is like a game that has ups and downs. Likewise, stock trading rises and falls on a daily basis but still, you will win, sooner or later.
Before investing and being a beginner, you first need to know about the stock market. Once you get the basics of trading and know the reasons for frequent shifts in the market index and many other things, then no one can stop you from becoming a king in the stock market.
Now, let’s see how to earn money by investing it through online stock trading.
Definition of Stock Market and Stock Trading
A stock market is a place where two parties buy and sell stocks. In the stock market, there are exchanges like the New York Stock Exchange and the NASDAQ. And big or small companies list their shares to raise their capital here. The stock can be bought and sold through these exchanges.
Also read: Top 7 Myths about Forex Trading
Stock trading includes a chain of Investment- Buying and selling stocks. Stock trading runs around this chain.
So, if we put market and stocks in the same frame then, a market is a place where buying and selling happen whereas stock is a collection of shares/equity (ownership certificate of a company) which is traded in these markets.
For example- Imagine this: One company is going into debt and asks for help from the public to save them. You and many more like you invest money and buy the shares of the company and make the company debt-free. What you have gained in this process? You have become a part-owner of the company, multiplied your money, and also received the dividend as a reward from the company. In brief, this is what the stock market and stock trading are all about.
Here are some of the online trading jargons:
#1: Annual report:
The annual report is very mandatory. It includes lots of information like a description of the company, cash flow, the market price of stock, audit statements, and much more. This report helps the investor to get information about the company which helps in choosing which share to buy.
Arbitrage is basically a strategy in which you buy one share at a low price from one market and sell the same share at a higher price in another market. For instance, stock ABC is trading at $20 on one market and the same ABC stock is trading $20.60 on another, you buy ABC shares for $20 and sell them for $20.60 on the other market.
#3: Bull market:
When prices are going high or are expected to go higher, then such a condition is called a bull market.
#4: Bear market:
This is opposite to bull market. When stock prices are declining or are expected to decline then such a condition is called a bear market.
#5: Day trading:
This is a strategy in which the act of buying and selling of shares goes on the same day. Even within hours or minutes before the closing of the market.
Dividends are rewards from the company to its shareholders. Basically, you get paid for owning the stock of the company. This is a part of the company’s profit that it shares with its shareholders.
#7: Price to earnings ratio (PE):
PE is to determine the stock valuation. PE’s ratio gives true value of stock and suggests investors about buying shares with high PE’S ratio. This ratio indicates which company’s stock price is overvalued and whose is undervalued.
Many other commonly used terms in the stock market are return on investment (ROI), Bond, growth stock, leverage, liquidity, penny stocks, Treasury Bonds, etc.
Process of online stock trading for beginners:
#1: Choose online brokerage:
You no more need to go to stock exchanges for buying shares. So, first, you need to look for an online brokerage that is simple, speedy, and secure for online trading.
A beginner trader should start with customer support and have access to multiple sources of education. At the initial stage, you need a platform that has smooth running, easy navigation, can give advice, and is easily available in case of difficulty.
There are many online brokerages like TD Ameritrade, Fidelity, Charles Schwab, Merrill edge, etc. So choose after reading their reviews and rewards.
#2: Open a brokerage account for trading:
Now you are satisfied with finding the best online brokerage. Then take a step ahead and open a brokerage account for trading. It’s very simple you need to fill an online application form by filling your personal information. In addition, Broker would need your other information like your investment goals, employment status, etc. Thereafter, initiate funds in your brokerage account. It would be best if you link your bank account with your brokerage account.
#3: Choose profitable or common stock:
The only solution is to read and research thoroughly. You are new to this trading game so you need to be very careful in choosing the right stock. Though your broker will provide you with information you also need to research the company fully. Like what do they do and how they do their stuff? You need to have exhaustive knowledge about the company’s strategy of making money. You can start searching with e.g. price earning ratio, SEC (Securities and Exchange Commission) report, order book, market capitalization, and profit before and after giving tax, BETA report, dividends, etc.
#4: Start investing:
Nervous about investing? It’s now time which you were waiting for. Now simply invest and earn.
Also read: What is liability insurance and benefits of liability insurance
After picking the best stock inform it to your broker and he will do the rest of the process. You simply relax and keep your eye on the stock market. Do not take stress about the daily swings in the market. Just keep tracking the developments around stocks.
A great investor is the one who can find a stock that is trading at the best price to its worth value. You can earn a lot of money when investing in the right company at the right time. In stock market prices fluctuate due to many factors, one of the important factors is supply and demand. You need immense knowledge to study such fluctuations. Therefore, before investing in any share, dig deep into the details of the company, and invest smartly. It would be good if you start your trade with a small amount of money.
To gain the best from the stock market you need to read related books and articles, find a mentor to learn, study successful investors, regularly follow the stock market, attend seminars, and do online courses. There are many strategies you will come across in trading but the most effective is buy and hold. This stock trading game is for lifelong so go slowly, take your time, keep it simple, and learn from every trade you make.
So, this was all in our guide about online stock trading for beginners. We hope you liked it and it was informative. If there is some clarification you need about this topic, then please ask us through the comments box. We will try to be of help.