Stock Market Basics: Buying & Selling Stocks
Buying and selling stocks can be a very confusing task because there are many things to learn about the stock market basics.
First, one must understand the basics and the foundation of stocks. Stocks are nothing more than parts of ownership in a company. Basically, a company offers stocks to the public to finance their company. Buying stock makes you a shareholder, and in essence, you own part of the company even if you are buying penny stocks.
There are different types of stock that one could buy. First is common stock. Common stock is exactly as it is stated, common, and holds no preferences. When the company offers a dividend, you are entitled to it. The next step up is preferred stock, which means you get a higher priority when it comes to dividends, meaning you get paid first.
Voting / participating stock is also available, where you can vote on issues of the corporation. Stocks of large publicly traded companies are traded on the open market, at such places such as the New York Stock Exchange, NASDAQ, etc. At the New York Stock Exchange, deals are done face to face in person. Prices are determined by an auction format in essence, meaning whoever pays the most, gets the stock. While this is going on, people can sell stocks at that price, and you are actually “trading” stocks. You may never meet the person you are trading with, but in essence that is what happens in two separate transactions.
Stocks can change constantly, due to many different things. It works on supply and demand, meaning if more people want a stock, the stock prices go up, and conversely, less interest equals a lower price. The most common way to purchase a stock are through brokers.
There are in person brokerage companies, such as Merrill Lynch, or you can go online and trade online yourself or through a broker. Online sites such as Scottrade, Etrade, etc let you trade stocks on a real time basis, and only cost a few dollars per trade. Many people may be enticed to buy penny stocks, but those are almost a sure bet to make you lose money.
Overall, there are some basics that were outlined that are important to trading stocks, but to really be successful, there is a bunch more to learn.
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Basics of Researching Stocks
The stock market is a great tool to gain a ton of money and lose a ton of money. Those that gain are those that do research, while those that lose probably hear something from one person, don’t research, and then buy it that day. They did zero research into the stock market basics and are destined to lose their money.
There are many things to look for when researching stocks and understanding the stock market. First off, is the company large or small, and what industry are they in? Pharmaceuticals are usually great buys since all it takes is one drug to take off and you have a winner. Other things to look at are the companies financials which give you key rations to know. Cash flow per share is important because it tells you how the company is spending their cash. If they are spending a lot of cash, they may not be a safe investment, but of course they could be investing the cash wisely, making them a good buy. Financial grade health is also important, if a company has no money, it isn’t wise to invest.
Companies with the highest grades are the most solid financially, and are normally better options. Growth grade refers to sales and if they are rising or decreasing. Again, the higher the grade, the better the investment. Many big companies and institutions buy stocks in many different things to hold value and make them money over time. If a stock you want to buy doesn’t have any of that, why would you want to buy that if those large companies don’t think they will make money over time?
Another big thing to look at is the accounts receivables of a company. Accounts receivables is how much money that is owed by customers for their purchases. If a company has a lot of accounts receivables, this means that there is less cash and more risk that they will get paid. The less accounts receivable the better. And of course the last piece of research are listening to stock analysts and your broker.
They can give you personal insight and advice on what they might do if they were in your decision. Research can be tough, but all it takes is asking a few people and looking at a companies financial history, and then you can determine if it is a good investment or not.
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Reading And Understanding Stock Market Charts
When you’re learning the stock market basics, one of the areas you want to know about should be understanding and reading stock market charts.
Several different types of charts are available for use to evaluate your stock portfolio or to evaluate stocks that you have an interest in and are wanting to research. A common chart to use to keep track of your current portfolio is the basic pie chart. The chart is circular and the sections of the pie represent the stocks you own in the quantitative proportion that they represent in your whole portfolio.
The chart can have labels that will give the stocks ticker symbol and commonly show the amount they have went up or down on that particular day. The chart can be color coded as well, to give you an idea of how your stocks are doing in a glance. Red would mean a down day, and green would be an up day. Keep in mind that your pie chart can show some stocks as green and some as red at the same time. They don’t all move the same direction at once!
The next chart you will need to learn to use is the line chart. This chart is easy to use and can be adjusted to give the information you need. You can track stocks that you own or stocks that you would like to find out more about before purchasing. These charts can be used to track price and/or to track volume (the amount of shares traded in a day). Variations of this chart would be the dot chart and the candle chart. The basic line chart is valuable because you can see patterns over hours, days, weeks, months or years.
You can read a daily line chart for a volatile stock that you are wanting to purchase for a short time period or you can use the line chart that covers a period of years to determine the stability of the stock for a long term buy and hold. The charts mentioned are the most common in usage. They can be printed out to study or you can watch your computer screen for live updates and chart progress while the market is open.
If watching the market move is of interest, there are trading platforms and steaming tools that will let you watch the market trade by trade, especially if you want to buy stocks online. You can get a lot of information from charts, but the important thing is to actually find the information that will apply to your needs and help you make the right investment decisions.
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keep looking »Recent Posts
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- Basics of Researching Stocks
- Reading And Understanding Stock Market Charts
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- Learning The Stock Market Basics
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- Stock Market Basics – Penny Stocks
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