When you buy and sell shares in publicly-listed companies, you participate in stock trading. Shares are purchased through a stockbroker. The share price is determined by the demand and supply of that particular stock on the open market.
When you buy a share, you become a shareholder in that company. You will be entitled to vote at the company’s annual general meeting and receive dividends if/when they are declared.
The Two Main Types of Stock Trading
Online Trading
You can buy and sell shares directly through a stockbroker’s website. You don’t need to have a lot of money to get started, and there are no minimum trade requirements. Check over here if you want to start trading online.
Traditional Broking
You deal with a physical stockbroker who will place your orders for you. The minimum trade size is usually much higher than online trading, and you’ll need to deposit a certain amount of money (known as margin) with the broker to cover your positions.
The type of trading best for you depends on your circumstances. Online trading is ideal if you’re comfortable using computers and are prepared to research individual stocks. Traditional broking is better if you want someone else to do all the paperwork and research for you.
Whichever type of stock trading you choose, it’s important to remember that shares are a precarious investment and can fluctuate in value very quickly. Make sure you understand the risks involved before investing any money.
So How Do You Trade with Stocks?
The first thing you need to do is open an account with a stockbroker. There are several different stock brokers to choose from, so do some research online to find the one that’s right for you.
Once you’ve opened an account, you’ll need to deposit some money (known as margin) with the broker to cover your positions. It’s your security deposit – it’s what the broker will use to protect themselves if you can’t repay your loans.
Next, you need to decide which shares you want to buy. You can either do this yourself by reading company reports and news articles, or you can ask your broker to recommend some stocks for you.
If you decide to buy shares yourself, you’ll need to determine how much money you want to invest. You can either buy a whole share or a fractional share (known as a penny stock). Most online booking platforms have a minimum trade size of just $1, so it’s possible to get started with a minimal investment.
Once you’ve chosen your shares, the next step is to place an order with your broker. It tells them how many shares you want to buy and at what price. The broker will then place the order on the open market for you.
The final step is to wait for your shares to be sold or bought. Once your order has been filled, your broker will automatically update your account balance and show you the current value of your investment.
What are the Different Types of Trading Orders?
Market Order
You buy or sell a share for whatever price is available in the market at the time, which means you run the risk of paying more than its worth or receiving less than its worth. In fast-moving markets, it’s possible to buy a whole number of shares even if there’s only a fractional amount available.
Limit Order
You set an upper limit on how much you’re willing to pay for a share and a lower limit on how much you’re ready to accept if you want to sell it. The order will only be executed if the share reaches your chosen price.
Stop-Loss Order
It’s an order to sell a share as soon as it falls below a specific price. You can use it to minimize losses if the stock price falls suddenly.
Take Profit Order
It’s an order to sell a share as soon as it reaches a specific price. You use this to lock in profits on a winning trade.
Trailing Stop-Loss Order
It’s similar to a stop-loss order, but it follows the stock price instead of setting a fixed price. The stop-loss order will automatically sell your shares at the current market value when the stock price falls.
