For the uninitiated, the stock market can be a daunting place. With all of the talk of bulls and bears, it’s easy to feel like you’re in over your head. But there’s no need to worry—trading stocks is simpler than you might think. In this blog post, we’ll give you a crash course in all things stocks so that you can start trading with confidence.
What Is A Stock?
A stock is simply a share in the ownership of a company. When you buy a stock, you are buying a piece of that company. For example, let’s say that you buy one share of Apple (NASDAQ: AAPL) stock. This means that you now own a tiny portion of everything that Apple owns—its factories, its patents, its products, and so forth. As an owner of Apple stock, you are entitled to a portion of the profits (or losses) that the company makes.
Of course, you’re not the only person who owns Apple stock. In fact, there are probably thousands or even millions of other people who own shares of Apple stock. Together, all of the owners of Apple stock make up the “shareholders” of the company.
Common Stock vs. Preferred Stock
There are two primary types of stocks: common stock and preferred stock. Common stock entitles its holder to voting rights and potential dividends—if the company declared them—while preferred stock does not come with voting rights but typically pays higher dividends than common stock.
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How Do I Buy Stocks?
You can buy stocks through a broker. A broker is simply a middleman who helps facilitate the sale between the buyer and the seller. For example, let’s say that you want to buy 100 shares of XYZ Corporation. You would place an order with your broker telling them how many shares you want and at what price.
Once they find someone who is willing to sell those shares to you at that price, your broker will execute the trade, and XYZ Corporation will become one of your holdings. It’s important to note that when you buy stocks, you don’t actually receive any physical shares. Instead, the number of shares that you own is tracked electronically on the books of your broker.
What Is Stock Trading?
In simplest terms, stock trading is the act of buying and selling stocks—pieces of ownership in public companies—on a stock exchange. When you buy a stock, you’re essentially betting that the company will perform well in the future and that the stock will increase in value. If you sell a stock, you’re betting that the stock will decrease in value so that you can buy it back at a lower price and turn a profit.
Of course, there’s more to it than that. There are different types of stocks, various ways to trade stocks, and myriad factors to consider before making any trades. But we’ll get into all of that later. For now, let’s focus on the basics.
How Does Stock Trading Work?
A stock exchange is where stocks are bought and sold. The two most popular exchanges in the United States are the New York Stock Exchange (NYSE) and the Nasdaq. When you want to buy or sell a particular stock, you must do so through one of these exchanges.
To trade stocks, you need a broker. A broker is someone who buys and sells stocks on behalf of their clients. In the past, brokers were only accessible to wealthy individuals who could afford to pay their hefty fees. But now, thanks to technology, anyone can sign up for an online broker account and start trading stocks with just a few clicks of a button.
Now that we’ve covered the basics of what stock trading is and how it works, let’s take a look at some of the different types of stocks that you can trade.
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When Should I Sell My Stocks?
Now that you know what stocks are and how to buy them, you might be wondering when the best time to sell them is. The answer to this question depends largely on your personal financial goals and investing strategy. However, there are generally two scenarios in which selling makes sense:
- If the company announces bad news such as lower-than-expected earnings or profitability problems, it might be time to sell before the stock price falls too far and crystallizes your losses.
- If the stock price has risen significantly since you bought it and it appears to be topping out or reaching its peak value, selling now could help you cash in on your gains before the stock price starts falling again.
Remember, there is no wrong time to sell—it all depends on what your financial goals are and what stage in your investing journey you find yourself in.
ETFs vs. Mutual Funds vs. Single Stocks
When many people think about investing in stocks, they picture buying shares of individual companies like Microsoft (NASDAQ: MSFT) or Amazon (NASDAQ: AMZN). But there are other ways to invest in stocks as well. One option is to invest in an exchange-traded fund (ETF).
ETFs are bundles of different assets—such as stocks, bonds, or commodities —that trade on an exchange like a single stock. Another option is mutual funds.
Mutual funds are also bundles of different assets, but they’re not traded on an exchange. Instead, they’re bought and sold directly through fund managers. Finally, there are single stocks. As we discussed earlier, single stocks are pieces of ownership in specific companies.
Trading stocks can be simple or complex depending on how deep down the rabbit hole you want to go. But at its core, investing in stocks is all about owning a share of a company and sharing in its profits (or losses). Now that you know the basics, it’s up to you to decide how involved you want to get in the world of stocks and investing!
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.