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Stock Trading Basics

Despite the internet being the information superhighway, there are plenty of new users every day who seek out simple and basic information for their needs. The finance world is so intriguing and filled with opportunity to make money that people often look to the internet to find out more about how this all works. We're here to clarify a few points with you about stocks and how they trade so that you can make money and understand what you are investing in. Trading in stocks can be a great way to make some money on the side, but, in order for this venture to be really profitable, you must have key information handy that will help you assess the value of your stocks.

What Are Stocks?

When a company reaches a certain growth spurt, it enters the market place by issuing shares. These shares have a certain value attributed to them and are bought and sold by traders. Owning shares of a company makes you a shareholder in the company, however, you have no real power in the company since you are a very minor shareholder. If you do end up owning a majority shares, then you have executive powers in the company and your vote counts in board meetings. Mostly, shares are issued in a secondary market, where regular traders buy them and this act of buying and selling helps the company gain funds for its other projects. Buying and selling shares in the stock market does not add value to a company since you are buying from one investor and selling to another.

Information About Stocks

  • Stocks become available on the marketplace once a company completes something known as an IPO, or an initial public offering. This means that a company’s share is not public and anyone can buy or sell it in the market.

  • Stock markets are not the primary marketplace. They are a tier2 market. What’s important to note is that companies do not buy and sell their own stock in the stock market

  • The only activity a company engages in after issuing an IPO is the issuance of new shares, or buying back stock.

  • In the United States, stock markets made an appearance as late as the 18th century (by this time, port cities in Europe already had flourishing stock markets).

  • Since stock markets began to proliferate, professionalism and regulation became imperative, this has ensured that buyers and sellers have trustworthy transactions in this market.

  • In the developed world, stock markets are self-regulatory. These non-governmental entities have the power to make and enforce industry regulations.

How To Trade Shares?

Trading shares can be quite an involved process. You need to have invested your time and money to make sure that you get a profit. One of the better-known ways to trade shares, this will ensure that you are not paying middle man fees to an endless chain of people and end up with little to no profit.
You can try and get in on an auction which will help you figure out how prices of shares are set and how the process of pricing works. This will help you immensely since you will be able you value your assets in hand much better and trade accordingly.

In the case of certain stock markets, there are traders who are employed to keep the bids and offers flowing so that at any given time a different group of investors are involved in the buying and selling process. Such people go by the name market maker. Here's some pointers on the markets themselves:

 A "spread" is the difference in value of a bid, and of an offer

 When this spread is narrow, and the quantity of bids are high, the markets are more liquid

 If the volume of buyers and sellers is high, and the prices are lower, there is a better depth in the market

The identifier of a good market is – small spreads (of bid and ask), good liquidity, and excellent depth. All three qualities combined make a market high quality and because of these factors, investors are more friendly towards such markets. Trading stocks can be immensely gratifying, but, it is something you should take on if you have the mental capacity to do so. If your work and life permits, you can definitely get into trading stocks on a regular basis.