What Is Stock Trading

What Is Stock Trading
Photo by OTA Photos – CC BY-SA 2.0

Answering the question, what is stock trading, is like trying to classify Wal-Mart as one particular type of store. Stock trading can be defined as the open buying and selling of public and private corporations that have met the prerequisite regulations. Carefully regulated market makers and brokers maintain control over the market and trading. Stocks are traded in an auction format where the price is determined by supply and demand but with extenuating circumstances that may drive the price either up or down.

An underlying value of the company and the intrinsic value placed on the stock by the public determine its price for trading. Many times this price is determined not so much by the actual value but by the perceived value of owning a particular security. This makes the stock market a volatile environment where emotion can play a huge role. What is stock trading? Stock trading consists of buying or selling shares of one or more companies after determining the actual and perceived value of the company and making an informed decision on whether the value of that company will continue to increase thus delivering value to the purchaser at some point in the future.

In order to buy shares of a company, a company will initially offer shares in a sale called the Initial Public Offering (IPO). IPOs are the primary market and raise money for the company. Without some form of inside information or a very large amount of available cash, most individual investors are not huge players in the primary market. The volatility caused primary market offerings results in huge swings in the share value of a company very quickly. Often driving the price of a security up very quickly, followed by a sharp drop in price when the emotion wears away. New traders and those without large amounts of disposable cash should avoid Initial Public Offerings.

People understand what is stock trading most often by looking at the secondary market. In the secondary market, stocks traded between investors offer no financial gain for the underlying company. The price an owner is willing to sell for and the price a buyer is willing to pay, and a small commission for the market maker, determines the actual price of the security.

What is Stock Trading and why is It Dangerous?

Market access through online brokers, share purchase plans, and deregulation made it possible for millions of individuals to become intimately involved in the world of high finance. Anyone who can open and fund a trading account can participate. However, stock trading has many pitfalls that can separate a new investor from their hard-won disposable cash. This separation happens at quickly today because of the speed with which online trading occurs. Ease of entrance into the market and stories of overnight success have given new traders a sense of excitement that has led to less knowledgeable traders trying to make it big on their first investments.

Common investors made a lot of money on the last bull run of the stock market. Experienced investors began to protect their profits while the less informed allowed the emotional impact of the times to drive their strategy and when the bottom fell out, billions of dollars of profit and initial capital was lost. This loss devastated millions of small investors that depended on the market for their income. There is no crueler master for the new stock trader than the market itself. The lesson for those millions has been to become educated on what is stock trading and how to make it work for them.

Online education for the stock market and trading is available for all at low or no cost. Investopedia, The Motley Fool and BigCharts provides a plethora of information on fundamental and technical aspects of trading stocks. The cost of this information is the time you are willing to invest. Dan Kennedy, a well-respected information broker, likes to say that, “Anything can be learned with just an hour of intense study per day.” With all the information available today, anyone can become a relative expert on almost any subject very quickly.

Stock trading offers traders, new and experienced, the potential for making a lot of money. The fundamentals of what is stock trading have not changed because of easy access to trading platforms and information. In fact, this ease of entrance into the market has made the fundamentals of investing more important than ever. Becoming educated, developing a plan, and following that plan in order to become a profitable trader. There are many strategies that may be followed to make money, take the time to find the strategy or strategies that match a compatible risk profile and profits will follow.

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