Stock trading shares, also known as stocks, are the units of ownership or the equity stake of the owners in a publicly-traded or privately-held corporation. As such, stock trading refers to the buying and selling of the shares of a publicly-traded corporation via the exchange.
As a form of investments, trading in stocks is one of the most profitable methods because of the high returns on investments on both the short-term and long-term basis. Emphasis must be made that its profit potential largely lies in the trader’s knowledge about the market as well as his skills in fundamental and technical analysis.
The traders fall into two general categories. First, the position traders are known for their willingness to own the shares on a relatively long-term basis usually between several days and several months.
Position traders use daily, weekly and monthly charts to determine the movements of the shares in relation to the market condition, thus, allowing them to determine the best time to sell their stocks or buy other stocks. Their approach usually leans toward the fundamental aspects of the company’s operation and direction (i.e., long-term prospects for growth) as well as the potential for dividends, such as stock options and cash dividends.
Second, swing traders will hold specific shares from a few seconds to a few hours but not for more than a day. Their trading patterns are viewed as erratic because of the fast turnover of the shares, but it should be noted that their buy-and-sell activities have a method, which maximizes profits and minimizes losses.
Stock trading using the swing method has several advantages. These include maximizing the profit potential of the markets’ natural ebb and flow while identifying more profit opportunities by spreading the risk and tying up less capital on the shares. They enjoy lower stop losses.
Many traders use both position and swing trading methods to enjoy the highest possible returns on investment. Usually, position trading is applied for blue-chip shares while swing trading is used for start-up shares and volatile stocks although there are exemptions to the rule of thumb.
Trading is conducted either on the exchange floor or on the electronic markets. Traders can choose between the two ways since many corporations now offer their shares in both venues. The traditional venues are the exchanges, such as the New York Stock Exchange and the London Stock Exchange.
The trades are summarized as:
• The trader tells his broker to purchase Y shares of X Company shares at market.
• The broker transmits the order to the floor clerk who will alert X Company’s floor traders; the latter will find another floor trader with Y shares of X Company to sell.
• The two brokers agree on the price and complete the deal, with the consent of the buyer and seller.
The electronic market, such as NASDAQ, is making inroads into the traditional exchanges because of the convenience with which stocks can be traded. The market uses a vast computer network that matches buyers and sellers instead of using stockbrokers, thus, its greater effectiveness and efficiency.
Regardless of the manner of stock trading, the most important thing is to learn the market first before putting in the first dollar into a trade
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