By rob eagar 
Trading in the stock market might sound very complicated but is easily accessible once one learns the basics. Essentially, trading involves buying or selling shares owned by public companies in the hope of earning a profit. The stock market is just a marketplace where buyers and sellers meet to exchange such shares at agreed-upon prices.
Here’s a breakdown of the basics of trading, key concepts, how trades work, and what affects stock prices.
What is Stock?
What is a stock? It means partial ownership in a company. When a company needs to raise money, then it can go public by issuing shares that people can buy and sell to an investor through the stock market. When you buy a share of any given company, then you become a shareholder who possesses a small part of that company. When the company performs well and the value increases, so does the value of the stock you own.
How does the stock market work?
The stock market works as a sort of an auction house where buyers and sellers agree on prices and undertake trades. There are essentially two primary types of markets in the stock market:
- Primary Market: This is a type of market where firms first issue new shares to the public through an IPO.
- Secondary Market: Here, investors deal with shares amongst themselves on exchanges, such as NYSE or NASDAQ. Most stock trading takes place in the secondary market.
Stock exchanges allow for an element of transparency, liquidity, and security between the buyer and the seller. Every stock listed on the exchange is assigned a unique ticker symbol to help identify it when making transactions.
Types of Trades
There are two major types of trades in stock market:
- · Buy Long: The basic mindset you gain as a stock investor is buying stocks at an optimistic view of rising in its price and subsequently holding on to sell at a higher price.
- · Sell Short: When you think the stock price is going to fall, you borrow stocks to sell at the prevailing rate of the price and buy those later at a reduced rate.
- Lastly, you would probably see options trading in which traders can get to buy or sell rights (not obligations) to purchase/sell stocks at pre-set prices. Options trading is essentially more advanced and somehow risky.
Types of Orders in Trading
For any stock trade, there are different types of orders through which one can execute a specific buying or selling strategy:
- Market Orders: This kind of order is executed instantly and at the prevailing market price. It’s best when one wants to buy or sell fast with speed trumping price.
- Limit Orders: In this case, you set a particular price at which you want to buy or sell. The trade will only execute once the stock reaches that price and may help control costs or ensure a good profit.
- Stop-Loss Orders: They are used in order to limit possible losses by automatically selling the stock of specific price.
What Determines Stock Prices?
Stock prices are determined based on the law of supply and demand. Where a large number of people want to buy a stock (high demand), then the price goes high, vice versa- where people like to sell more than they want to buy the stock (low demand), the price goes low. Fundamental factors influencing the stock prices:
- Company Performance: In the event of a company’s good earnings report, launching of new products, or simply carrying out a splendid business strategy, the share price increases.
- Economic Indicators: The strength of economic growth, inflation, and interest rates can very well be identified as one of the cardinal drivers of the movement of the stock price. Where the economy is impressive, people invest more, thereby increasing the prices.
- Market Sentiment: Public opinion, news, and investor sentiment act as some movers and shakers of the price. For example, any positive coverage through news about the firm increases its price, while negative coverage lowers the price.
Role of Brokers
A broker is a middleman between buyers and sellers who organize trades on the stock market. In other words, a broker is either an individual or an agency; thus, in respect of paying fees or charges for conducting certain services, a person or the client is required to pay some amount of money to him for these purposes. Presently, by means of electronic brokerage platforms, any individual can trade from his residence. At this point, it is very important to choose a broker with low fees and good features, especially for first-time investors.
Why Do People Trade Stocks?
People buy shares for various reasons, the first reason being to increase their wealth. Stock trading has the prospect of profit on successful online trading platform but also allows for income in the form of dividend as some companies are liable to give part of their profit earnings to the shareholder. On the other hand, selling shares carries risks of possible loss as some may lose their money if a company does poorly or in a falling market.
Risks and Rewards
While trading in the stock market is sometimes an opportunity to make profit, risks are crucial. The stock market can be very volatile, and hence the prices can also go up or down depending on the economic conditions, political events, or even other factors. To prevent increasing losses, self-education about these risks and starting from a strategy that matches your goal is highly important.
Final Words
Trading in the stock market is quite a great activity that, with basic principles, can prove to be extremely rewarding. Therefore, one will want to know well the type of trades, the factors that influence stock price variations, and how the brokers play their role in trading to make intelligent investment decisions. Start small, do your research, and prepare for both highs and lows. With patience and knowledge, stock trading can thus become a beautiful tool for building wealth.
Risk Warning:
Trading in Foreign Exchange and Contract For Difference carries a high level of risk to your capital and unexpected price movements. A key risk of leveraged trading is that if a market moves against your position, you can incur additional liabilities far in excess of your initial margin deposit. Only speculate with money you can afford to lose. The products listed on this website may not be suitable for all customers, therefore ensure you fully understand the risks involved and seek independent financial advice if necessary.
Disclaimer:
The information provided here, whether from a third party or not, is not to be considered as a recommendation; an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. Readers are advised to do their own research when conducting trades in capital markets.