Nowadays, it is not uncommon to hear of people who have made success overnight by trading in the stock exchange. As you hear of those who became billionaires by trading one hot stock, you also hear of those who got wiped out by the stock market, going from millionaire to broke people.
In the past, stocks were traded in an archaic form of way. It was done by using papers and stock certificates. Also, before you buy a stock, you have to do so through your broker who would go to the floor of the exchange to do it for you.
However, due to the computer age, things have drastically changed. Today, you don’t need to call your broker to have some stocks traded. You can do it yourself with your computer anywhere you are connected to the internet. Stocks can be traded from the home, at work, while eating, in the toilet, in the bus or anywhere else. All this is achievable due to the presence of online trading.
This article would educate you on the essentials you need to know about trading stocks online. It would be done through the following format:
- What Is the Stock Market?
- How is online trading done?
What Is the Stock Market?
The stock market is also known as the capital market. It is a market where shares are bought and sold. Companies use the stock market as an avenue to raise capital. This is done through what is called an Initial Public Offering (IPO). In an initial public offering a company would sell parts of itself to shareholders for an initial price. Those that buy the shares become the owners of the company as they have a “share” of the company.
Profit is made from the stock exchange either through capital appreciation or dividends. Capital appreciation is a situation in which the price of a stock becomes higher than the price for which it was bought. The shareholder can then decide to sell the share and keep the difference as profit.
Some other people make their profits through dividends. A dividend is awarded by a company from the profit it makes to the company shareholders.
How Is Online Trading Done
Stocks are traded through the instrumentality of a stock broker. A stock broker is the one who takes orders from clients about the stocks to be bought and sold. Before a broker can trade your stocks you need to have a brokerage account with him.
With online trading, instead of a physical broker, the broker is electronic. In this situation, investors, through a computer can trade stocks directly on the floor of the stock exchange. To do this, the investor would have to open a brokerage account with an online broker. There are many online brokers like E*Trade, Ameritrade and Charles Schwab. But one of the most popular brokers now is Boss Capital.
When opening the account, you choose the type of account you want to open. It could be an individual account, a joint account, a custodian account (for your children) or a retirement account.
After setting up the account and filling in other information, you would then have to fund your account. Your account can be funded with either cash or margin. Funding with cash means you have to directly transfer cash to your brokerage account. Funding by margin is when the broker borrows you some funds for investing and uses the stocks you have in your account as the collateral.
After funding your account, you can then go on to start trading stocks. When trading stocks you have to ensure that you have an investment strategy. There are two popular investment strategies, fundamental investing and technical analysis. Fundamental investing is one in which the investor trades according to the financial strength of the company. Technical analysis doesn’t concern itself with a company’s strengths. It uses demand and supply to determine whether a stock would rise and fall on a daily basis.
In Conclusion, I hope the above has given you an insight into what online trading is all about. I hope you have a splendid investment time.Learn More