Trading stocks for beginners
What is Stock Trading?
Trading stocks online is quite different than merely buying into a company’s stock and holding until there is a satisfactory return. In fact, retail traders only need to buy or sell a CFD (contract for difference) which mirrors the current going rate of the underlying stock and profit from the price difference.
For example, if you want to take advantage of Apple’s (AAPL) or Amazon’s (AMZN) great performance, you just launch your trading platform and open a buy position in just a few clicks. If the price then moves up and your assessment was correct, you will make some profit based on the price movement and the amount invested.
Also, CFD traders can profit from sinking stocks just as easily. If a company is on the brink of collapse, you can just enter a sell position instead and still profit from the stock’s price fluctuation. As long as you have a good grasp on the market’s sentiment, there is a good chance you can predict the future direction of the stock’s price.
While this may sound like more complicated than outright buying a stock, it’s actually much simpler and more affordable to boot. There are a number of advantages in stock trading with CFDs compared to traditional investments in the stock market and you will find that CFDs are more easily accessible and you can trade them around the clock instead of waiting for a stock exchange to open.
How are stock values calculated?
Initially, when a company is listed on the stock exchange, an investment bank goes through its records to estimate its value. This is mostly based on the total value of the company. Then the company will decide how many shares it will offer to the public accordingly.
After that, the stock’s value can be affected by a variety of internal as well as external factors. The performance of the company as a whole, it’s public perception as well as international events that may impact its bottom line will have a negative or positive effect on the value of its stock.
Simply put, it largely depends on supply and demand. If investors are looking to buy a stock, its price goes up and when demand wanes, the price goes down to attract more buyers. This is why there is a limited number of shares available you can buy and the rest remain with the company. The company may decide to offer more of its stock at any time to increase supply, but ultimately, it’s up to investors if they will buy or not.
As such, market psychology and speculation are the main drivers behind a company’s stock valuation and devaluation.
Is stock trading a good investment for beginners?
The short answer is yes. The stock market is performing incredibly well for decades now and there is no shortage of successful traders and investors.
Regardless if you are a beginner or experienced in trading other markets such as forex or commodities, the stock market provides remarkable opportunities and is one of the best performing financial markets with good reason.
However, it’s important to consider that, as all investments, it can be a risky endeavor and knowledge and experience outweigh a hunger for success. The good news is that you can find valuable information online for free and the trading platforms themselves provide sophisticated tools in a user-friendly way which makes things much easier for beginner traders.
Which stocks offer the best returns?
Since the stock market can be somewhat volatile with numerous announcements and issues that can affect the prices of stocks, popular companies are always favorable to trade as long as your timing is accurate.
The best way to approach trading a stock is to be patient and wait for the market to decide a direction and form a trend. There are key financial announcements regarding publicly listed companies that are guaranteed to stimulate investors’ interest. If you can consult an economic calendar and take note when the company’s next quarterly revenue report will be released, you can anticipate turning points in the market.
For example, if a revenue report shows strong performance and the numbers are better than expected, the price is likely to rise as more investors rush to buy the stock. On the other hand, if the company doesn’t meet the market’s expectations, the investors will start panicking and look to sell their holdings in order to protect their earnings. As a result, the stock’s value will start plummeting rapidly.
Trading stocks can be favorable for beginner traders but there are several factors that need to be taken into consideration before taking the plunge.
The stock market can be influenced both by speculators and international politics which are largely unpredictable, and this is why you should first make sure that you are comfortable with a certain degree of risk.
Also, is should be noted, that while a stock may have been performing well in the past, short-term volatility is always expected to muddy the waters and move the price unexpectedly in either direction.