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How to Start Trading Stocks

Most people would love to own a business without ever having to show up at work. They would b delighted to sit back, watch their business grow, and pocket the dividend checks. This kind of situation may seem like a pipe dream to many people, but it is closer to reality than they might think. It is possible to earn money by owning and trading stocks.

People’s interest in the stock market has grown dramatically over the last few decades. Once a toy for the wealthy, stocks have now turned into the vehicle of choice for increasing wealth. The advances in trading technology coupled with the demand have opened up the markets so that, today, almost anybody can own and trade stocks. However, despite their growing popularity, most people do not fully understand stocks.

Definition of Stocks

Simply put, stock is a share in the ownership of a corporation. It represents a claim on the organization’s earnings and assets. As one buys more stock, his/her ownership stake in the corporation becomes bigger. Owning a company’s stock means that person is one of many shareholders/owners of the company and; therefore, one has a claim to everything the company owns, albeit usually a very small claim

Different Types of Stocks

There are 2 major types of stocks: preferred stock and common stock. The first category represents some degree of ownership in a corporation, but usually does not come with the same voting rights. Investors who own preferred stock usually get a guaranteed fixed dividend forever. Common stock represents ownership in a corporation and a claim on a portion of the profits. Common stock holders get one vote per share to vote in board members, who keep an eye on the major management decisions.

How to Start Trading Stocks

Beginners wanting to trade stocks may encounter numerous tongue–twisting acronyms that can make them want to give up. However, with adequate preparation and research, anyone can trade stocks and earn money. Just like riding a bicycle, trial and error, together with the determination to press forth, can lead new investors to success. New investors should do the following:

  • Open a stock broker account and become familiarized with the layout.
  • Read books that will provide a wealth of information about stock trading.
  • Read articles about stock trading.
  • Find a mentor who has a fundamental understanding of the stock market.
  • Study the great investors.
  • Read and follow the stock market.
  • Consider paying for research and analysis.
  • Take classes and go to seminars.
  • Practice trading through a simulator.

To buy stocks, one needs the help of a licensed stockbroker who can purchase stock on his/her behalf. However, it is important to find the right stockbroker. Most stocks are bought and sold on exchanges, where buyers and sellers negotiate on a price. Some of these exchanges are physical locations while others are virtual, made up of a network of computers. The purpose of the stock market is to allow for the exchange of stocks between buyers and sellers, thereby minimizing the risk of investing. Investors can buy and sell stocks through:

  • A stock fund
  • A direct stock plan
  • A full–service or discount broker
  • A dividend reinvestment plan

Trading stocks entails fees. A dividend reinvestment plan or a direct stock plan may chance a fee for that service. Brokers also change a commission. Stocks are, without a doubt, one of the greatest financial instruments ever invented for building wealth. In fact, they are a part, if not the foundation, of most investment portfolios. However, investors who are starting their journey to financial freedom need to understand how to start trading stocks. They need to have a solid understanding of this amazing financial tool and how to trade it on the stock market.

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