Now before you begin forget the stories of day traders becoming millionaires or of making a full time living from a brokerage almost immediately. A combination of commissions, fees and gains taxes can eat heavily into a day traders profits. It’s not unusual for people to buy stocks – sell stocks for months without making any profit.
Some people rush in – lose their confidence and give up in no time. You have to learn to gauge the markets and this takes time. Of course you don’t want to lose money and you won’t if you take a cautious and steady approach. In other words walk before you can run!
So What’s the Procedure?
Well first of all you need to get a real-time stock quote to reveal the current price of the stock you want to buy. Many brokerages provide these real-time quotes as part of their service. A good trader will constantly follow the pattern of any stock price wise to monitor fluctuations. Delayed quotes found on some financial sites are at least 20 minutes behind the actual market. They can be useful but try not to rely too much on them. A delayed price can differ greatly from a quote in real time. This in turn can affect profit or loss.
Secondly you will get to the point where you decide to make your trade – the bit where the heart beats just a little faster! You can place what we call a ‘Market Order’ or a ‘Limit Order’. Market orders as you may already have worked out go to work at the current real time market price. The limit order will only execute at a price specified by the trader or even a better price. You set the limit so if this isn’t reached then the trade won’t go through.
There are various options available from brokerages with the aim of preventing high losses when the stock price starts to fall. In otherwords they provide a safeguard for you.
- A stop order is a type of market order that comes into action when the price falls to a level the trader sets. It executes at the real time market price though, and not at the stop point.
- A stop limit order executes at a price set by you rather then the real market price. Because the markets can sometimes move so quickly the broker may not be able to carry out the execution at your set price. So the stock owned by you may continue to drop in value.
- A trailing stop order executes after the price falls through a mark set by the individual. But its selling price is actually moving instead of remaining fixed. You can set the markers either as a percentage or in points. The sale will go through when the price falls to that amount. If the price goes up then the markers move with it. Let’s say your stock is trading at $18 per share and your set the trailing stop order with a four point parameter – the initial selling price would be $14. If the price then goes up to say $21, then the new selling price would be $17 and so on.
The Timing of Trades
Successful trading is all about making good decisions and you need to decide whether these orders remain ongoing for the whole day or until you cancel. Again brokerages can vary but some will let you place ‘Fill or Kill’ or ‘All or None’ orders which facilitates a part exchange rather than the complete exchange of those stocks you want to trade.
You must take into account executing a trade online is not an instant thing even if a market order is placed. The truth is it can take a little while to find either a buyer or a seller and for the electronic processes to take over. It’s also important to remember your trades will only execute when the market is open – even though you can buy and sell your orders at all hours of the day or night. It’s possible your own company allows trading after hours but this in itself is much riskier due to the number of trades taking place.
Again make sure you carry out extensive research taking time to make sure you have everything absolutely right. This not only includes the brokerage you may be using but any firm you plan to make an investment in. This might also include studying financial statements or annual reports.
You also need to look at what we call the ‘Edgar System’. EDGAR includes information and periodic reports from companies not only in the United States but in many other countries as well. Filing this information with EDGAR is required by law.
There’s a wealth of top class information on the internet regarding all forms of stock trading.
‘THE WHOLE POINT OF A MARKET TRADING IN STOCKS IS TO ACT AS A CATALYST BRINGING BUYERS AND SELLERS TOGETHER. THIS IS TO REDUCE THE RISKS OF INVESTING. IT MAY LOOK AND SOUND A LITTLE SOPHISTICATED BUT A STOCK MARKET IS ACTUALLY NO DIFFERENT TO ANY OTHER MARKET’!
REMEMBER IF YOU COME ACROSS A STOCK AND IT JUST LOOKS TOO GOOD TO BE TRUE THEN AS THE SAYING GOES IT PROBABLY IS!!
Stock trading can quickly become both a fascinating and lucrative hobby or it may propel you into making a decent second income. Whatever your reasons for trading make sure they are the right ones. The stock market otherwise known as the secondary market should be handled with great care. What you should also note is the trading of a firm’s stock doesn’t directly involve that firm!
There are national and governmental organizations who educate investors and represent the reputation of the market generally. These are the very best sources of reliable information about making investments. You may want to take a look at:
- The Securities and Exchange Commission (SEC), part of the United States federal government
- The National Association of Securities Dealers (NASD), a private-sector regulator
- The North American Securities Administration Association (NASAA), an international investor protection organization, which also created the Investing Online Resource.