Trading Stock Starts With The Basics

First of all let's talk about what stock actually is. You can't trading stock before you know what it is, right? When a company wants to raise capital to expand their business or if they need a cash injection, they float all or part of it onto the stockmarket. Institutions will often buy large percentages of the company floated, together with private investors investing in the company for a medium to long term gain over time. Private investors often sell the shares too quickly and although they believe they are investors, they are actually trying to trade the stock for a material gain in a shorter timeframe. This can be hazardous unless you know what you are doing, as it's all-too-common for a private investor to sell too low and buy too high, thus losing a large percentage of money overall. I am sure some of you reading this right now are nodding your heads about this as it has happened to all of us involved in buying & selling stock at one time or another, especially during the dot com bubble of the late 20th century where every man and his dog was trading stock, which I will talk more about in later posts.

As a results many financial instruments and platforms for trading stock, ranging from covered warrants, contracts for difference and spreadbetting have appeared over the years as ways to exploit movements in the market. The most old fashioned way of buying into a company was and is to buy shares in a company, take receipt of a paper share certificate and upon any sale, a call would be made to a broker. After the sale, the investor would send his/her certificate off in the post and about 3 weeks later a cheque would arrive in the mail.

Thankfully these days as far as individuals are concerned, this is now done electronically which has created an abundance of opportunities for buying and selling of shares without the hassle of tons of paperwork. It's also created faster movements in the money market now that people have access to platforms unheard of in previous years. The promise of profit and overnight riches has led many private investors into the world of trying to trade stock. Some do it successfully whilst others crash and burn.

A golden rule of trading stock is to set your entry and exit points on the stock you are tracking before you even pull the trigger and make the trade. You are looking for lots of small losses and gains to exceed those losses so you make a profit and a living. I promise you this is the hardest thing in the world to do as it goes against human nature. Many people successful in other walks of life will fail at trying to trade stock succesfully. Knowing the way people are motivated emotionally will help you hugely when trading stock for capital gain. In my next post I will talk more about mastering your emotions so you don't let your heart rule your head as a trader.