Stock Trading | How to Trade Stocks for Beginners 2024

If the thought of stock trading scares you, you’re not alone. People with very little experience in stock trading are terrified by the thought because they fail to understand how the stock market works.

The reality is that investing in the stock market bears risks, but when done in a disciplined manner, it is among the most efficient ways to build up your wealth.

Before you create an account on an online trading platform, you should first know what stock trading is.

Read on to find out what stock trading entails.

Criteria used to pick our Stock Brokers

• Minimum initial deposit
• Ease of use of the stock broker interface
• Available trading tools and features
• Trading and non-trading fees
• Number of tradable asset classes
• Trading platforms supported
• Broker customer support

Step 1: Open a brokerage account

Step 2: Learn How to Trade Stocks

What is Stock Trading?

Stock trading refers to buying and selling shares of a publicly-traded company. A stock trader is typically someone who frequently buys and sells these stocks to capitalize on daily price fluctuations. In stock trading, for every buyer, there is a seller. For example, when you buy 100 shares of stock, someone will be selling 100 shares to you. And when you sell your shares of stock, another person has to buy them.

These frequent traders are betting that they can make some money in the next minute, hour, days, or month, instead of buying stock in a blue-chip company to pass along to their grandchildren someday. These short-term traders hardly sit on a stock.

How Does Stock Trading Work?

For stock trading to work, there must be buyers and sellers. Stock is typically traded by these buyers and sellers on exchanges. The buyer places a market order to purchase shares of stock at their current price or a limit order to buy if the stock reaches a certain price. The order is then matched with up with a seller who has put up shares for sale.

Although there are physical stock exchanges, stock trading is done online. To trade share, you need a stock broker to act as an intermediary to the stock trading. Your broker can be a full-service or an online broker. A full-service broker can place trades on your behalf as well as give you advice about which share of stock to trade. An online broker is a software platform that lets you execute trades yourself.

Stock trading works via a network of exchanges such as the NYSE or the Nasqad. A company lists its shares of stock on an exchange via an initial public offers (IPO). Investors buy these shares, which enables the business or company to raise money and develop its business. These investors can then trade these shares of stock among themselves, which drives the supply and demand of every listed stock.

This supply and demand help dictate the price of each stock or the level at which the people involved – investors and traders – wish to buy or sell. Most of the calculations are done by computer algorithms. Buyers launch a `bid’, which is typically less than the amount a seller `asks’ for. That difference is the bid-ask spread. For stock trades to happen the buyers should increase their price or sellers should decrease theirs.

Historically, stock trading likely occurred in an actual marketplace. Nowadays, the stock market exists electronically, on the internet and through online stockbrokers. Trading occurs on a stock-by-stock basis. However, prices often move in tandem due to political events, news, and economic reports among other factors.

What are Some Stock Trading Courses for Beginners?

If you don’t want to solely rely on books to learn the basics of stock trading, you should try checking out stock trading courses.

Based on statistics, around 90% of traders fail. The major reason for their failure is the lack of trading education and lack of support from a skilled trading mentor. By watching online trading courses made by experienced and well-known traders, you’ll have a higher chance of achieving trading success. Here are two courses that can help you get started.

What are Some Stock Trading Books for Beginners?

You can easily gain more knowledge about stock market trading and investing in general by reading books. Below are the best stock market books you should check out.

1. The Intelligent Investor by Benjamin Graham and Jason Zweig
2. How to Make Money in Stocks by William O’Neil
3. When to Sell: Inside Strategies for Stock-Market Profits by Justin Mamis
4. Irrational Exuberance by Robert J. Shiller
5. Stock Investing For Dummies by Paul Mladjenovic
6. A Random Walk Down Wall Street by Burton Malkiel
7. Market Wizards by Jack Schwager
8. Stocks for the Long Run: The Definitive Guide to Financial Market Returns & Long-Term Investment Strategies by Jeremy Siegel
9. Common Sense on Mutual Fund by John C. Bogle
10. One Up On Wall Street: Know to Use What You Already Know To Make Money in The Market by Peter Lynch

Step 3: Choose a Trading Strategy and Start Trading

After learning about the different online stock brokerages, what to look for in a broker, and how online stock trading works, its time to get your hands dirty. But first, you need to decide the type of trader you would like to be and chose the appropriate trading strategy.

If you, for instance, wish to trade actively throughout the day, consider scalping or other day trading strategies. And if you want to hold onto trades for some time, consider position or swing trading positions. We explain these four in details below:

What are the Stock Trading Terminologies for Beginners?

1. Buy – You buy stock shares in a company.
2. Sell – You get rid of the stock shares you bought. There are two reasons behind this. It’s either you’ve already gained profit from the stocks or you’re trying to cut the losses you’ll incur if you keep holding the stocks.
3. Bid – This is the price you are willing to pay for a share of stock.
4. Ask – This is the price that the buyers are asking for a share of stock.
5. Bid-ask spread – You can get the bid-ask spread by subtracting the amount people want to spend and the amount people want to get. You should get the difference between the bid price and ask price.
6. Bull market – This is a market condition which means that the price of stocks is expected to increase.
7. Bear market – This is a market condition which means that the price of stocks is expected to decrease.
8. Limit order – This will help you execute orders only at or under your purchase price. You can only use this to execute orders only at or above your target sale price.
9. Market order – This will help you execute a buy or sell order as quickly as possible.
10. Volatility – This implies how fast the price of stocks moves up or down.
11. Liquidity – This refers to how fast you can buy stocks as well as sell stocks to get cash.
12. Trading volume – This refers to the total number of stock shares that are traded daily. This is a factor that can significantly affect the market’s liquidity.
13. Blue stock chips – These refer to large and well-known companies that offer stable dividend payments to its stockholders.
14. Dividend – This refers to the earning being paid to a company’s shareholders annually based on the number of stocks that they hold.
15. Broker – This refers to a qualified individual who will buy and sell shares for you in exchange for a fee.

How much do stock traders make?

According to the Office of the New York State Comptroller as well as data gathered by Glassdoor.com, $89,000 is the average annual salary of day traders who are working for companies in the United States from 2002 to 2016. The $89,000 annual salary is 27% more than the average salary of New York City residents.

On the other hand, if you are trading for yourself, the annual profit you’ll make will largely depend on which market you trade, your capital, day trading education, whether all of your trading strategies are effective or not, and how much time you allocate for trading stocks.

Note that day traders often only risk 1% of their total stock or account balance to minimize the risks.

Most day traders see to it that their win rate is at least 50%. They also target to make their gains around 1.5 times higher than their losses. For instance, if they risk $300 on a trade, their target profit for that trade is around $450.

Below is an example of a day trading scenario.

Account balance: $30,000

1% of account balance: $300

Stop loss (equal to buy order price): $0.04

Target ask order price: $0.06

If the stock price is $0.04, a day trader can buy 7,500 shares for $300. There are 100 round-turn trades that day traders can make per month. If the winning rate is 55%, below is the total amount of money a day trader can make within one month.

55 profitable trades: 55 x $0.06 x 7,500 shares = $24,750

45 trades that the trader lost: 45 x $0.04 x 7,500 shares = $13,500

Net profit for one month = $8,250

On average, investing in stock generates an average of 10% per annum but it is important to note that there isn’t a fixed return in stock trading as there are a lots of factors that is affecting the market.

What are Some Tips When Trading Stocks?

Conclusion

If you`re new to the stock market, you need to know what type of trader you want to be and how you want to invest.

If you have funds and time to participate, stock trading can be a very helpful step forward that can result in great returns. But first, learn how the stock market works and how to play it safe before starting out with your hard-earned cash.

Glossary of Investment Terms

FAQs