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Trading basics for the beginners

By Charles Hopkins Published 03/13/2006 | Finance
The Share market immediately conjures up stories of fortunes made and lost. A share makes the holder a partial owner of the company and different types of shares have different rights associated with them. If you are able to sell off your share at a price higher than your buying price, you make a profit but you also run the risk of incurring a loss if the share price falls. The business you invested in makes profit and they provide you part of it as dividend. In the share market you are an anonymous player and many have made a reasonable profit. There is no unique formula to ensure consistent gain but before you venture into this market you should know the basics of stock trading.

What does trading stocks mean?

Buying and selling of stocks is referred to as trading in the financial market.

You have to approach a broker in order to trade. You can trade either electronically or on the exchange floor. Exchange floor scene must be familiar to you; the NYSE has been on television as part of news coverage innumerable times. It is here that your broker arranges for your shares to be ordered. . The floor clerk   locates the floor trader from whom the shares can be bought. Once the price is agreed upon, the deal is finalized. 

Electronic transaction is very common today. It is an efficient and fast method of stock trading. Here too you require a broker but you receive confirmations almost immediately .In online investing your broker will connect to the exchange network and search for a buyer or seller according to your order.

How are the stock prices determined?

The stock prices cannot be predicted, they depend on various factors like political unrest, if there is a huge demand for a particular share at a given time, prices can fluctuate, any event that could adversely affect the company will also cause the share prices to drop. 


 

Before you decide on which stock to buy you must answer the following questions.

Do you know the company well enough? 

What is the companys reputation in the market?

Have you gone through their annual report?

Do you have the confidence to invest in this company?

Is some negative news about the company circulating?

How are analysts predicting the future?

How is the management of the company?

What are their growth prospects?

Am I aware of the insider activity?

Is it an internationally renowned company?

How is their marketing strategy?

Have there been any changes in the management recently?

How consistent has been their performance?

Has there been a sudden shift in their production?

  Whenever you invest you should be aware of your limits and remember not to exceed them. Share market involves a lot of risk , risk taking could either  lead to fortunate gains or to  bankruptcy.

     You should avoid investing money more than you can actually afford.

     Know about your investment well and do not blindly depend upon your broker.

     Follow regular stock market quotes to keep yourself abreast of the market swings.

The share provides you with an earning power, gives you partial ownership of a company and the freedom to buy or sell at any moment. But if you are a novice in stock trading you need to play safe and equip yourself with a lot of information. Unless you are a seasoned player you should invest only after surveying   all the alternatives and never go beyond your risk tolerance. Know where to draw the line and begin trading in stocks!