Stock trading has developed hugely over the last few years due to the high interest from traders. Since it has become available with online brokers, you can essentially buy and sell almost any corporation’s stocks over the internet.
In order to get yourself involved in this market, we advise you to learn where the money goes when you buy a stock, and what it means when a company sells its stocks.
In the following guide, we are going to take you through the whole process, from registering as a trader to buying and selling stocks. You will also get an idea of how your money actually affects the market.
There are several ways you can get started in stock trading, and in most cases, you need a stockbroker to assist you in placing market orders. So to get going you will need to find a broker that is reliable and regulated, then sign up for a trading account.
Buying a stock is similar to any other market activity - you pay a certain price to the seller for the exchange of a certain good or asset. However, the price of the asset fluctuates up and down according to many factors, including annual sales reports, market speculation, and regional events.
Stockbrokers used to operate physically from the stock exchange, where they see the shares prices going up and down, receiving bids from buyers over the phone, and conducting transactions on the spot.
However, these days you can do almost everything over the internet. Through your broker’s trading platform, you can add funds to your account, choose specific company stocks, and place different market orders.
Corporations may choose to release their shares to the public, through an IPO (initial public offering) where investors buy the first stocks released by the company. Then, after a lock-up period of 90 to 180 days, the stocks become available on the secondary market.
The secondary markets are known as the stock exchange markets. These include markets like the New York Stock Exchange or the NASDAQ Composite. They are markets where traders buy and sell stocks of different corporations.
Your online stockbroker allows you to access the stock market, directly or through CFDs, where you can see stock price movements live, select the stocks that interest you according to what’s available on the broker’s website, and start trading.
Let’s say, for example, Amazon's stock price is $1,000. In order to acquire this stock, you pay $1,000 to the marketplace. More precisely, you pay another trader who owns the stock, and now you are the new stock owner.
After a couple of months, Amazon performs well, and the stock price increased to $1,050. You decide that is enough of a gain for you, and before the stock price drops you want to sell the stock back to the market.
You sell the stock that you owned, or in other words, another trader pays you $1,050 for this stock, and now you are left with a profit of $50 from this transaction. You may repurchase the stock if the stock price drops, trying to gain some more profit from buying the stock at a lower price.
The important thing to note here is that this market transaction does not directly affect the financial situation of Amazon. When you purchase the stock, your money does not go to Amazon itself - it goes to a trader who owned the stock from purchasing from another trader or from the IPO.
There are different trading styles and strategies for stock trading. It depends on the investor’s experience, expectations, and budget. However, compared to other financial instruments, some investors prefer stock trading for the following reasons:
Some corporations pay dividends to their shareholders, which means that by owning a single stock in the company, you receive a sum from the company that is paid monthly, quarterly, or annually.
Usually, it is not a huge amount of money. You can expect somewhere between 2% to 5% yearly yield, which means that if a stock is worth $100, you may receive a payment of $2 to $5 per year.
Not all companies pay dividends for their stocks. Therefore, if you are aiming to earn money in stocks from receiving dividends, it’s better to check the corporation’s stock beforehand. You can read our guide on getting $500 in dividends monthly for more information.
When you own a stock, you might be eligible for voting rights. Usually, you get one voting right for every stock that you own. It also depends on the type of stock you are holding.
If you hold a preference-type stock, you do not have any voting rights, but on the other hand, can be eligible for dividend payments. If you hold common stock, you are more likely to have a voting right in the company.
When a company needs to make a decision following up an adverse situation, or when electing board members, you can use your voting right.
Buying a stock and holding it is often beneficial in the long term. For example, the EUR/USD pair in the Forex market saw a price change of 10% only between Jan 2021 and Jan 2022. While Google stocks saw an increase of 40% in one year during that same time period.
Given the above example, if you invested $1,000 in the Forex market on the EUR/USD pair, the 10% change in price means that you could earn or lose $100. On the other hand, if you invested your money in Google stocks, you could have earned $400 on your investment.
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Not directly. When you buy any publicly traded stock, you are paying another trader who owns the stock for the exchange of money. However, if a company’s stock price becomes higher than the IPO price, they can issue more stocks at the new price and accumulate more money.
When you buy a stock of any company, and it performs well and releases a positive earnings report, the stock price is more likely to increase. If the stock price increases to an amount more than the original price you purchased it for, then you can sell the stock on the market and gain the difference as a profit.
Stocks are traded in the stock exchange markets, such as the New York Stock Exchange market, NASDAQ Composite, and American Stock Exchange. In order to participate in the market, you need a stockbroker who can give you access to the market where you can execute different market orders.
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