Trading with stocks is one of the world’s largest markets. Millions of people have recognised the potential stock trading offers and therefore test their luck as well as trading skills in trading stocks. The stock market is, in fact, the aggregation of buyers and sellers of stocks. These stocks can be listed on stock exchanges or traded privately. Successful stock traders manage to generate lots of cash in short period of time and such positive examples are probably the main reason why stock trading has become so popular among people.
How Does Trading with Stocks Work?
Trading on the stock market means transfer money for a stock from a seller to a buyer. Naturally, this transaction requires two parties to come to an agreement on a price of the stock, which always confer an ownership interest in a particular company. Traders on the stock market can be both small individual investors and large investors; these can be located anywhere in the world and include pension funds, insurance companies, banks and hedge funds. In terms of how the transactions are processed, there is a potential buyer that bids a specific price for a stock and a potential seller who asks for a specific price for the exact stock. When there’s a match, a sale takes place and that’s about it. Obviously, the reason why someone buys stocks is because s/he believes that the price per stock will grow and hence generate profit. However, if that doesn’t happen, then the buyer may lose all or some of the money s/he invested.
What are the Most Important Criteria for a Good Stock Broker?
New and inexperienced traders usually need some guidelines that can help them find a good online stock broker. Therefore, we have made a list with all the most important criteria a stock broker has to meet in order to be considered trustworthy, reliable and serious.
In order to serve citizens of a particular country, stock brokers sometimes are required to obtain an operating licence. However, not all online stock brokers are licensed or regulated and we strongly recommend you to avoid such sites. Operating licence is much more than a simple document that allows a company to work in the UK or Germany; the licence comes with numerous requirements that have to be met by the operator and some of those requirements include safety measures, deposit insurance, data confidentiality, high quality service and etc. Thus, always stick to approved sites by CySec, FCA, BaFin or any other regulator.
Using an online stock broker services usually comes with certain fees. For example, some brokers offer a flat-fee trade plan that can cost anything from $5 to $10. In addition, many brokerages require its customers to pay a mutual fund fee that can be between $10 and $50. The list goes on with options trade base fee, options per contract fee, exercise fee, assignment fee and etc. The conclusion is that different stock brokers usually have different fees and therefore you should carefully check where you can get the most for your money. Also, tend to trade at sites that have a low minimum deposit amount of $500-1,000.
Another important thing to stock traders should be the variety of trading offer. Many stock brokers not only offer trading with stocks, but they also provide trading with Forex, CFD, binary options and etc. It’s never bad to be able to try different types of trading without having to complete several registration processes or make multiple deposits. In addition, it’s crucial to check the stock trading offer itself. One of the questions you want to ask is how many stocks and companies are featured at your chosen broker. You want to be able to trade with both popular and demanded stocks as well as some less popular stocks that can generate good profit in case they note a high jump of value. When it comes to the overall trading offer, it’s crucial to check the commission rates, see whether various trading techniques such as scalping are allowed and etc. Naturally, the more tolerant the operator is the better.
Sometimes we like the site, we like the offers featured at a stock trading broker, but we hate the platform. Therefore, it’s very important to find trading software that suits your needs and that you find easy to use. The software can be web based or desktop based. The difference between the two is whether you’re required to download it into your desktop or you can start trading via your Internet browser. Once again, which one is best depends on the traders personal preferences and thus you should stick to the one that works the best for you. Some basic characteristics that good trading software should have are stability, reliability, user-friendly interface and high responsiveness. Furthermore, it’s always great to be able to trade on the move and for that you’ll need a mobile trading platform. Thus, whenever you hesitate between two stock brokers, choose the one that supports mobile trading.
Imagine how much money traders can lose if they are asked to invest funds and start trading without any prior knowledge of how stock trading actually works. Such scenarios can be avoided by sticking with brokerages that offer both demo accounts and educational materials. Just like the name suggests, demo accounts are not real money accounts and therefore trades can neither lose money nor win money when they trade using a demo account. However, demo accounts are crucial for new members that are given the chance to practise their skills and trading strategy before making a deposit. Learning materials such as webinars, e-courses, e-books and guides, on the other hand, provide traders with the needed theoretical knowledge. These two – demo account and learning materials – are everything a trader needs in order to understand how stock trading and trading platforms work.
How many times have you tried to contact a customer support representative and failed? How did that make you feel? If the answers are “Many times.” and “Irritated.” you are probably aware of the importance of a professional and easy to reach customer support team. Aside from availability, which should preferably be 24/7, you should also pay attention to the contact options provided by the operator. Live chat is one of the best ways to get immediate response alongside phone or Skype support. Naturally, it won’t hurt to have an e-mail support as well, especially if the team responds fast to e-mail queries.
Why is the Stop/Loss so Important?
Unfortunately, there are still traders that fail to understand the importance of stop/loss orders. These are some of the strongest tools traders have in order to limit their losses and save their profits. So, what exactly are stop/loss orders? Well, those are orders placed with a stock broker that tell the system when to buy or sell once the stock reaches a certain value. For example, if you buy a stock whose worth is $30, you can place a stop/loss order 10% under that price to limit your loss to only 10%. Therefore, is the stock value reaches $27, it would be sold on the market and you would lose $3.
Are There General Investment Strategies?
Experienced traders know that there are several general investment strategies that not always prove profitable, but definitely improve your overall performance. It should be noted that there are two basic approaches in investing and those are fundamental analysis and technical analysis, while several specific types of popular stock trading strategies include day trading, market making, trend following and scalping. Nevertheless, whatever the strategy is, there are three tips that we would like to point out to our readers.
First, it’s important to diversify your investments. Diversification is a technique that reduces risk by allocating investments among different industries, financial instruments and etc. Another tip is to think long-term and hold positions, but also not to be afraid of giving up bad positions with losses. Thus, if things are obviously moving in your favour, don’t act too fast to collect small profit. However, if you are aware that a particular position is generating loss and it’s very unlikely to improve, you should definitely move on from it. The last advice is to use management of investment capital or not to open positions with more than 5% of the capital. This is yet another way of protecting your funds if things go in a wrong and/or unexpected direction.
History of the Stock Market
Well, having in mind the way stock trading works, it can be said that the world’s first brokers appeared in the 12th century in France. These were, in fact, people that were managing and regulating debts of agricultural communities and traded with debt. A century later Venetian bankers started trading government securities and they were followed by bankers in Verona, Pisa, Florence and Genoa in the 14th century. Italian companies are known as the first companies to issue shares and thus their connection to stock trading is not surprising. English and other Low Countries companies followed Italy’s example in the 16th century. In 1602 the world got its first joint-stock company – the Dutch East India, which resulted with an increased action on the Amsterdam Exchange. Year after year the stock trading market has been constantly growing and today some of the largest ones are the one in the UK, the USA, China, France and Canada.