Trading in stock is an exhilarating market to get involved in for stockholders. Stocks are capital elevated by a company through the issuing and consent of shares. Stocks and Equities are considered to be long-term investments. Stock trading offers a lot of opportunity for traders with excellent strategies. Short-term trades are possible in stock trading, and it is profitable too.
Here in this article, tradingcritique.com will explain all the basics you need to know about trading from how to trade in stocks, aiming for long and short-term positions to buy or sell, how to pick stocks, when to trade them and some intelligent Trading Strategies that could help you make a profit. Keep on reading to learn more about stock trading.
To increase the understandability of this article Trading Critique recommends you to read about Trading: all you need to know about and Financial markets.
What is Stock trading?
Stock trading means the exchange or buying and selling of stocks/shares/equities in a stock market. There are many financial markets and the stock market is one among them.
A stock market is a place where the exchange of stocks/shares/equity and derivatives trading which considers the stocks as an underlying asset takes place. Exchange-traded derivatives are traded in Stock exchanges.
Stocks, Shares, Equities are used interchangeably in the stock market, although they have some technical differences. To know the difference, read our article on Stocks vs Shares vs Equity: The difference.
Technological development in stock trading with history
Stock trading is present from ancient times in different forms and was more primitive. In the present, it is automated, and technology plays a main role. Stocks and trading related to stocks have gone through a lot of changes all through these years. The stock trading happened even without a proper stock exchange. A coffee shop even acted as a stock exchange.
The first-ever formed stock exchange officially was the Amsterdam stock exchange which was started in the year 1602. The New York stock exchange was not the first stock exchange to be formed in the USA. Instead, the Philadelphia stock exchange was the first one to be started in the USA in 1790.
The introduction of the telephone, the computer and the internet have changed the functioning of stock markets and the process involved in stock exchanges. Most of the exchanges are totally automated and all kind of trading can happen through computers and the internet. The work that happens in a physical place has reduced now and supercomputers have taken the place of the floor brokers. The prevalence of floor brokers which was prominent before 50 years has considerably reduced in size.
There are more advanced technologies, software, apps, that are now available for trading. The stock trading can be done just by sitting at your home with a computer or a phone connected to the internet. That is all needed now to indulge in stock trading. With the internet in hand and a piece of proper knowledge can help you to do your stock trading.
Now there are many technologically advanced developments in stock trading such as high-frequency trading, trading platforms with technologically advanced software, Digital stock trading for monitoring real-time stock performance, speedy transactions and easy decision making.
Some advanced stock trading broker platforms are Thinkorswim software by TD Ameritrade, Etrade, Robinhood, Fidelity, Ally, etc.
To know in detail about the developments in stock trading, read our article on Historical and Technological developments in Stock Trading.
Financial asset vs security vs instrument involved in Stock trading
All kind of financial instruments and financial securities that are traded in the stock markets can be called financial assets. Stock/Share/Equity are the ones that are basically called as financial security. Bonds can also be known to be financial securities. Financial securities come under financial instruments.
To easily understand the relationship between the financial asset, financial instrument and financial security, we can say financial security is a subset of financial instrument, whereas financial instrument is a subset of the financial asset. So, both financial security and financial instruments can be said to be financial assets. Here financial asset is the superset, followed by financial instrument and financial security.
The financial assets that are traded in the stock markets are the stock of the companies and derivative contracts related to the stocks. Derivatives are of two types namely, Exchange-traded derivatives and Over-The-Counter (OTC) derivatives. Options and Futures are the famously known Exchange-traded derivatives. There are a lot of OTC derivatives, the major ones are forwards, spread betting, CFD, Exotic options, etc. Exchange-traded derivatives are also financial securities.
Mostly the financial instruments that are traded in centralised stock exchanges can be called financial securities whereas the stocks traded on over-the-counter markets cannot be said as financial securities.
But the stocks of private companies which cannot be publicly listed and are sold in OTC markets can also be said as financial securities.
Stock market
A Stock market is a type of financial market where the financial securities, derivative contracts and other financial instruments on stocks are traded. A place or a virtual platform where stock trading takes place can be called a stock market.
The Stock market is a subsection of the Capital market which is used to raise capital. The Bond market also comes under the Capital market. To know more about these concepts, check our article on Financial markets .
The Stock market can be divided majorly into the Primary stock market and the Secondary stock market. The Primary stock market is where you buy the Initial Public Offerings (IPOs) of a company whereas in the Secondary stock market the buying and selling of IPOs take place in the second level. Stock exchanges and OTC trading platforms come under the secondary market.
Financial instruments that are traded in stock markets
In the Centralised stock exchanges such as the London stock exchange and New York Stock Exchange, you trade in the stocks of the publicly listed companies.
In the OTC stock trading platforms, you can trade in the stocks of private companies that are not publicly listed. Walmart is a famous company that started trading its stocks in OTC markets and they developed into a publicly listed company. In OTC markets, you can also trade in OTC derivative contracts.
There are stocks called Penny stocks which you can trade for even a penny. These trades can give you profits when you increase the volume of your trades. But knowing about the advantages and disadvantages of penny stocks before indulging in them is essential.
Trading with IPOs
When you start a new company the part of all the shares/stock/equity of that start-up rests with the single person who is the proprietor of the company. So, the proprietor is the one who invests all the money for the growth of the company.
But as the company grows, the company may decide to bring in more money into the company for its development. It decides to bring in more investments even from a common man who is not a great big investor.
Finally, the company decides to sell its Initial Public Offerings (IPOs) and bring in more investment into the company. Other than public offerings there are other investments options available for the company such as Angel investment, Venture capital, etc.
The IPO is bought by the investor or retail trader. But in reality, IPOs are bought in large by Market makers and Dealers. The small amount, the stockholder uses to buy the IPOs can be used for the development of the company. If a normal citizen buys the IPOs, then he/she becomes the investor for the company. This process is the basic concept of stock.
Each company sets its limit on how much percentage of ownership to be sold as shares. The total number of the share, selling price of a share is determined by a complete set of process. This process is done by investment banks to the companies. The proportion cost of the shares everything is determined by analysing various aspects.
For any company to sell its shares in a centralised stock exchange it needs some minimum eligibility criteria or requirements. Only the companies which fulfil these requirements can be listed in the stock exchange and can sell their initial public offerings in a centralised stock exchange.
When a company does not have that much eligibility to be publicly listed in a centralised stock exchange then the company uses the Over-The-Counter(OTC) markets to release its initial public offerings. In the USA, these companies are listed under pink bulletin board or Over-The-Counter bulletin board (OTCBB). All other processes are the same as it happens for the initial public offering but it is just that the market changes here i.e., the stocks are sold in the OTC markets.
Basic processes involved in various stock trading
The first foremost trading that is involved in stock trading happens in the primary market, where the buying and selling of IPOs take place. The buyers of the IPOs are the ones who receive the dividend from the company. The capital raised from the selling of the IPOs is the one that goes for the company’s development.
Investment banks act as an intermediary between the company and the investor which sells the IPOs on the company’s behalf. The Investment banks receive a commission for the intermediary work it does.
The IPOs that are bought in the primary market are further traded between the buyers and sellers. This happens in the Secondary market. The Stock exchanges come under the secondary market and the exchange of stocks between the investors and traders among themselves happen here.
The company is not involved in transactions that happen in the secondary market. The secondary market transactions are between traders and investors.
The investors with the initial public offerings will finally receive the dividends and the ownership of the stock changes when it is bought and sold many times in the secondary market.
The companies which issue the stock does not get any benefits from these secondary market exchanges. The profits and losses incurred from these trades are for the investors or traders.
Money flow in Stock trading
The money which is used to buy the stocks go to the Company for its development. Not all the stocks you trade in different markets directly go to the company. When the stock of a company is bought in the primary market, it goes directly to the company. The IPOs are exchanged in the primary market to raise money and only this money reaches the company.
The holder of the stock will be provided with a dividend. This dividend amount is decided by the company itself. A company may or may not provide a dividend to the stockholders as it may decide to use that money for the further development of the company.
Whereas the stock trading which happens using derivative contracts does not reach the company. These exchanges happen in the secondary stock market. The transactions here happens between the buyers and the sellers of the stocks. Centralized Stock exchanges also come under the secondary market.
Beginners in trading may not understand this difference. They may think investing in stocks in any stock trading platforms reaches its respective companies for its development.
Participants involved in stock trading
Participants play a major role in any kind of trading because without participants the trading cannot take place. Let us see the important participants required to trade in stocks.
- Buyer: Buys the stocks and derivative contracts.
- Seller: Sells the stocks and derivative contracts
- Investor: Invests his money in stock trading. The investor can act as both the Buyer and Seller.
- Issuer: Issues stocks. Important issuers in stock trading are Publicly listed companies in the centralized stock exchange. Private companies issue the stocks in OTC markets and the OTC platform service providers issue the derivative contracts.
- Stock exchange: Where the stock trading takes place. A centralized stock exchange is a regulated stock market, some examples are the New York Stock Exchange, London stock exchange, Australian Stock exchange, Toronto stock exchange, Euronext, etc.
- Clearing corporations: Clearing corporations also called the clearing houses which monitor and record all the data regarding the trades that happen in a centralized stock exchange. These corporations reduce counterparty risks.
- Broker: Can be a person or a firm. Broker intermediates between the Buyer and Seller.
- Dealer: Can be a person or a firm. The Dealer buys the Financial Securities in large amount and sells them for their benefits to the retail traders and investors.
- Broker-Dealer: It does the function of both the Broker and Dealer. In a Broker-Dealer platform, you can find the operations that consist of both the broker and a dealer. Most of the Broker platforms now act as Broker-Dealer.
- Market maker: Buys and sells a large number of stock market instruments to provide liquidity in the market.
- Over-The-Counter (OTC) trading platforms: These are the platforms where the stock trading takes place other than a centralized exchange.
- Financial institutions: These institutions act as Financial Intermediaries in stock trading. Investment banks are the ones that act as an important Financial institution in stock trading.
- Regulatory bodies: They regulate all the processes that happen in Stock trading in various markets. These are mostly supported and are under the vigilance of the government. Some examples are FINRA, SEC, etc.
Regulations in stock trading
Stock trading is regulated by various regulatory bodies in different countries. Every country has its own regulatory bodies and regulatory mechanisms. Some of the famous Stock regulatory bodies are U.S. Securities and Exchange Commission (U.S. SEC), Financial Industry Regulatory Authority (FINRA) of USA, The Financial Conduct Authority (FCA) of UK, Australian Securities and Investment Commission (ASIC) of Australia, etc.
Basically, the stock trading is regulated by the centralised exchange where it is being traded. All the mechanisms which take place in stock trading are monitored and recorded by the clearing houses connected with the stock exchanges. These clearing houses act as a counterparty for each and every trade.
So, when you buy or sell the stocks in Exchanges, these clearing houses will give you a surety for the amount you have invested in the stocks. If any problems happen between the buyer and the seller, the clearing houses are the ones to solve them. It also takes care that no kind of frauds happens in stock trading. This makes the stock trading in the centralised exchanges to be more regulated than the OTC markets.
The NYSE and NASDAQ in themselves act as clearing houses. The other well known clearing houses in the USA are National Securities Clearing Corporation (NSCC) and Options Clearing Corporation (OCC).
Many centralised clearing corporations are authorised by the respective stock exchanges and government’s regulatory bodies. You can find the list of various clearing houses on their websites of such as the list present in the SEC, CME group, etc.
Over-The-Counter markets (OTC) are regulated by various regulatory bodies. There are regulatory bodies which give a surety for the money which you invest in OTC markets also. Only the regulated Broker platforms of OTC markets gets the surety for the customers’ money invested from the government side. If a regulated Broker company becomes bankrupt, its customers get a minimum surety of return for their investments from the government. In unregulated Broker platforms your money will not have a surety. There are many steps taken by various countries to develop Central Clearing Houses (CCP) for OTC markets after the Basel-III norms recommended it.
Best Stocks to Trade
Now you have an idea of what to look for in a stock and where to find them. We have listed a breakdown of the most popular stock trading picks below. The most familiar Exchange-Traded Fund (ETF) is the S&P 500 (SPY). Frequent trading of more than 100 million shares a day and the huge volume allows you to trade both small and large positions, depending on volatility.
US Stocks
| Stocks | Company Name | Stock Market | Market Cap* | Volume* (10 days Average) | Historical Volatility* |
|---|---|---|---|---|---|
| GOOGL | Alphabet Inc (Google) Class A | NASDAQ | 1.661 T | 1.365 M | 12.42% Low |
| MSFT | Microsoft Corp. | NASDAQ | 2.04 T | 24.39 M | 13.05% Low |
| AAPL | Apple Inc | NASDAQ | 2.268 T | 74.97 M | 15.25% Low |
| F | Ford MTR Co Del | NYSE | 59.316 B | 83.828 M | 34.35% Low |
| TSLA | Tesla, Inc | NASDAQ | 654.78 B | 25.87 M | 37.56% Low |
Values are subject to change periodically.
UK Stocks
| Stocks | Company Name | Stock Market | Market Cap* | Volume* (10 days Average) | Historical Volatility* |
|---|---|---|---|---|---|
| AZN | AstraZeneca PLC | LSE | 115.25 B | 1.528 M | 19.61% Low |
| 0QZI | Facebook INC Class A ORD (CDI) | LSE | 729.67 B | 51149.2 | 24.45% Low |
| RDSB | Royal Dutch Shell Plc Cl B | LSE | 113.32 B | 6.762 M | 27.33% Low |
| STAN | Standard Chartered PLC | LSE | 14.21 B | 4.866 M | 28.18% Low |
| MRW | Morrison (WM) Supermarkets PLC ORD 10P | LSE | 5.77 B | 13.55 M | 55.18% Low |
Values are subject to change periodically.
The UK Stocks can often see high volatility across the whole sector. Mining companies and the associated services are other sectors that can see sizeable price swings, larger than the wider The Financial Times Stock Exchange (FTSE) market.
Possible other choices
Apart from the popular options above, there are also other familiar stock exchanges worth considering. It includes the Toronto Stock Exchange, Tokyo Stock Exchange, Philippine Stock Exchange, London Stock Exchange and National stock exchange of India. You could start trading Australian stocks, Chinese stocks, Indian stocks, European stocks, Canadian stocks plus a range of Japanese stocks.
Stock index
A set of stocks is grouped under a stock index and the overall performance of the stocks under the stock index is represented by a single value. This helps the investors and traders to know about the performance of the groups of stocks from the single stock index value. The best example that can be given for a stock index is Nasdaq100 which gives the index value considering the performance of 100 different company’s stocks. Some of the famous companies present under Nasdaq100 are
- Apple Inc. Common Stock (AAPL)
- Amazon.com, Inc. Common Stock (AMZN)
- eBay Inc. Common Stock (EBAY)
- Facebook, Inc. Class A Common Stock (FB)
- Microsoft Corporation Common Stock (MSFT)
- Netflix, Inc. Common Stock (NFLX)
- PepsiCo, Inc. Common Stock (PEP)
- Starbucks Corporation Common Stock (SBUX)
- Tesla, Inc. Common Stock (TSLA)
- Zoom Video Communications, Inc. Class A Common Stock (ZM)
You cannot directly buy a stock index as you buy a normal stock. The stock index value just gives a reference value that determines the overall performance of the set of important stocks.
Some stock indices are useful in understanding the economy of the country as a whole. The major companies that are the backbone of the country’s economy are listed in the major stock indices. The stock indices of developed countries are said to be more consistent, and it is followed frequently by traders and investors.
The major stock indices of various countries are as follows,
| Countries | Major stock indices |
|---|---|
| United States of America | S&P 500 Index (SPX), NASDAQ Composite Index (IXIC), Dow Jones Industrial Average Index (DJI), Volatility S&P 500 Index (VIX) |
| United Kingdom | UK 100 Index |
| Canada | S&P/TSX Composite index (TSX) |
| Germany | DAX index (DAX) |
| Japan | NIKKEI 225 Index (NI225) |
The number represented in the stock indexes represents the number of companies present in the specific stock index. For Example, the S&P 500 Index means there are 500 companies are present under this market index.
Futures and Options trading is possible using the Stock indices as an underlying asset. Major profits can be obtained through these kinds of kinds of Derivatives trading.
Some kinds of trading that mimic buying of stock indices is Stock Exchange Traded Funds (ETFs) and Index mutual funds. Using these two you can trade in stock indexes as you trade in normal stocks. These are available with the Broker platforms which provide them.
When to Trade Stocks?
Timing is the most important thing in trading. You have to know the best times to trade.
- Begin Early – If you want to start your trading after a generous lie in, don’t be stunned when you struggle to make a profit. You need to be at 8 AM, practice for the day ahead. This will allow you time to commence research and configure your monitors with the stocks you will be tracking that day.
- Hold it Short – You will make more money if you trade all day. Day traders see the best returns when they trade for just 1-3 hours. You might make £500 in 2 hours and £1000 when you trade for 4 hours. If you are looking at stock trading for a living you might get the best return per hour if you trade in short bursts. Earning successfully in stock trading will take proper rational efforts from your side.
Stocks to Trade Today
We all know volume and volatility are crucial. How is it going to help us find the best stocks to trade today? Well, ‘Risers and Fallers’ tables are a good easy way to find active markets. It means something is happening, and that creates opportunity.
Many brokers will display a table of active shares, either they call it ‘Risers/Fallers’ or ‘Most Traded Shares’. They should all point you to the most appropriate events for stocks in the day trades.
Stock Trading Platforms
The key decision is to choose the right trading platform for your online trading. Do you need advanced charting? Can you trade the right markets, such as ETFs? Can you automate your trading strategy? There are a lot of important decisions to make when choosing your stockbroker, and many will depend on your trading style.
It is important to select a regulated trading platform or you may end up being cheated by fraud trading platforms. You should be so aware of selecting your trading platform.
Select your best stock trading platform
Once you enter into any new trading platform, tradingcritique.com recommends checking the regulations of the trading platform without fail. The regulations of the trading platform will always be displayed in a very accessible place on the website so that the customers can easily notice it.
The unregulated trading platform does not mention any regulations on its website. To cross verify the regulations, you can check for the official Broker-Dealer Companies’ certification on the websites of the respective regulatory bodies.
All the Legit Broker-Dealer platforms which are regulated are present in the Broker reviews section of tradingcritique.com. Check for your broker there, if you do not find the broker it is likely that your broker is not regulated.
To know more about the Broker platforms you are looking for, please give the website link of the Broker platform in the comments section or you can ask your queries about the Broker platform here. We will respond to you after checking the regulations of the Broker platform and will guide you further in your trading journey.
Demo Accounts
Try before you start. Many brokers offer demo account for easy access to the traders when they start with their real accounts. This gives some training for the traders at the start. You can also use stock market simulators which are available for free on various websites. One of the famous free stock market simulators with more participants involved is provided by Investopedia.
Education
Getting educated about stock trading in detail before you enter live trading is more important. In live trading, you invest your money. So, if you are unsuccessful in a stock trade you may even lose the complete money you have invested. It is absolutely important to educate yourself about stock trading.
Broker platforms also offer education to their traders through e-books, pdf documents, live webinars, and expert advisors. So, you need to analyse these things before opening an account.
Different types of Stock trading strategies
There are different types of stock trading strategies that can be executed in different stock markets. Following a type of stock trading strategy depends on the Stock trader. Some major types of stock trading strategies followed by the majority of traders are given below,
1. Going long in Stock trading
Going long in stock trading means that you hold the stock for months or years with the expectation that the value of your stocks will rise.
Holding your stocks for a long time to give you profit is called going long in stock trading.
Going long is the traditional and the trading style followed by most of the stock traders that too especially in centralised exchange-traded stocks and derivatives.
2. Going short in Stock trading
Going short in stock trading means the trader sells the stocks with the idea to repurchase them again when the stock market is favourable. In case, you already own some stocks. You predicted that those stock prices will decrease at some time from your technical analysis. Now, you decide to profit from this market movement.
As a result, you decide to sell your stocks at a higher cost now. You wait for the market to move downward and the prices of the stocks you sold to decrease. Once the market reaches your predicted point, you buy back the same stocks you sold. Now, you own the same stocks you sold. But you profited from the small stock market movements through your skilful technical analysis.
The difference amount in your selling and buying is your profit. Going short in trading is famous in OTC derivatives trading. It gives you more profits in less time. Going short is mostly followed by day traders and scalpers with efficient technical analysis skills.
3. Active trading
In Active trading, the investor places 10 or more trades a month. Usually, they use a strategy that relies heavily on the timing of the market, trying to take advantage of short-term events to make profits in the coming weeks or months.
4. Short-term trading
Short-term trading is the plan of action engaged by investors who play debate with stocks – buying and closing their positions of the same stock in a single day, caring little about the inner workings of the fundamental businesses. The goal of the short-term trader is to make a little cash in the next few minutes, hours or days based on daily price deviations.
These short-term trades bring in potential profit in the next minute, hour or days, rather than buying stock in a reputed company to pass along to their grandkids someday. Famous in OTC stock markets.
Trading styles in Stock trading
According to the time you can spend on stock trading, trading style differs. Trading styles based on time for stock trading are as follows.ding in stocks: When you hold your stocks for some weeks, then it is called swing trading.
- Position stock trading or investing in stocks: Investing in stocks means that you hold your stocks for months or years to get profits.
- Swing trading in stocks When you hold your stocks for some weeks, then it is called swing trading.
- Day trading in stocks: Buying and selling stocks to capitalize on daily profit fluctuations. In day trading you hold your stocks and derivative contracts only for a day. You buy and sell your stocks the same day.
- Scalping in stocks: You hold your stocks for some seconds to few minutes in scalping. Scalping is not followed in centralised exchanges, but it is more prominently followed in OTC stock markets.
Trading styles followed in Stock derivative markets
Some specific trading styles are followed in the derivatives market in stock trading. This is more prevalent in OTC stock markets. The derivative trading styles followed are,
Hedging in stocks: This trading style is famous in stock derivatives contracts. Hedging is where you protect your stocks from future price fluctuations. Future contracts are the famous stock hedging contracts.
Speculation in stocks: When you guess the future price movements of the stocks you bought or going to buy, it is called speculation. It is guessing that the value of the stocks is going to rise or fall. Generally, this is the basics of stock trading. You buy any stock because you think that the price of your stocks is going to rise in near future. Speculation is done using both fundamental and technical analysis in stock trading.
Arbitrage in stocks: When you buythe stocks in one stock exchange andsell it in another stock exchange, it is called as arbitrage. The price difference for the stocks you exchange in the stock exchanges is the profit you get. For example, you buy the Apple stock in the NASDAQ and sell them in the London stock exchange for profit. The major necessity here is that the stocks should be listed in both the stock exchange where you buy and sell.
Margin trading in stocks: It is available only in OTC platforms that too mostly used for derivatives trading. Firstly, you start your stock trading only with a margin amount in margin trading. Secondly, you trade for stocks that have a value more than the margin amount you provide for the OTC provider. Here you provide the margin as your initial deposit to the service provider and borrow the rest of the amount from the service provider to trade in stocks.
The traders who follow these above styles are said as Hedgers, Speculators, Arbitrators and Margin traders.
To know more about this kind of traders read our article on the Different types of derivative traders.
Important terms to understand in stock trading
- Ask price: Ask price is the price at which you can buy your stocks as a buyer.
- Bid price: Bid price is the price at which you can sell your stocks as a seller.
Both the Ask price and Bid price will be available in the stock markets such as in the stock exchanges and OTC stock markets.
Both Ask price and Bid price are present in the “QUOTE” provided by the stock exchanges. Ask price and Bid price depends on the demand and supply of the shares.
When there is more demand for a stock both the Ask price and Bid price increases. When there is less demand for a stock both the Ask price and Bid price of the stock decreases.
- Spread: The difference between the Ask price and Bid price is called the spread. The spread is the profit made by the OTC service provider.
- Quote: A Quote is where you find all the information about a specific company’s stock. You can find information like the charts, price, stock history, trade size volume, ask price, bid price, opening price, closing price, high, low, The quotes are provided by the stock exchanges or OTC stock trading platform service provider.
- Bearish stock market: When there are more buyers to buy stocks, then that the market is said to be bearish.
- Bullish stock market: When there is a Bullish trend in the stock market then there are more sellers to sell their Stocks
Order – placing in stock trading
To start with any kind of trading you need to first place an order. After you place the order the process of your order is executed. Then finally, the execution of your trade takes place. So, placing your order is the mandatory function to start any kind of trade in any stock markets and stock trading platforms.
Order is helpful to open and to close your trades. You can program when and at what position you need to open your trade and at what position you like to close your trade according to your requirements.
Your order can be programmed to be executed at the time of placing the order or sometimes later as specified by you. By using different order types, you can program your order to be executed at different times. Now the Broker platforms provide more than 100 different order types such as Interactive Brokers from which you can select the order type.
The major order types that are used in stock trading are as follows,
- Market Order
- Limit Order
- Stop Order
- Market If Touched Order
- Limit If Touched Order
- Guaranteed Stops
- Stop Limit Order
- Trailing Stop Order
You should definitely take a look at this article on Types of Order: Easily Explained, to learn in detail.
Order Execution
Once your order is placed your order should be executed. You can also programme to execute your orders at different durations. You can mention the type of order execution when you place your order. Now all the platforms are totally automated where are you can specify your order execution time while placing your order.
This is helpful when you do your analysis and program your stock trade to be executed at the right time. It reduces the time you spend on your stock trading. You are not required to investigate the stock market movements all the time. Analyse, choose the correct duration for the trade, place your order, and be relaxed.
The stock trades which you pre-programmed will automatically be executed. But you need to pay extra commission for these special features you use to the Broker online platform.
The major order types that are used in stock trading are as follows,
- Good Till Cancelled (GTC) – valid until you manually cancel it.
- Good for the day – valid till the end of the day.
- Good till date and time – valid till the mentioned date and time.
- Fill or Kill – order execution is immediate or it will be cancelled.
- Execute and Eliminate – execute the possible amount of order and cancel the rest.
Order Pricing
The different types of orders mentioned above will have different types of pricing. The pricing depends upon the market in which you trade in. As a retail trader, you place your order on the Broker platform. The Broker platform acts as an intermediary and places the order in the Stock exchange on your behalf. Order pricing is done by considering every day’s rate provided by the stock exchanges.
The Broker platform may increase the order price as they may add up the commission charge. The commission is charged for the type of order you select and for other features. So, you must know completely about the order pricing before placing an order with your Broker platform.
The pricing is determined by the Demand and Supply of the stocks. Mostly the order price is determined according to the Ask prices and the Bid prices provided by the Buyers and Sellers. The Institutional Investors, Broker-Dealer platforms, OTC platforms act as the Buyers and Sellers most of the times determining the stock order pricing.
The profit/ commission made by the service providers is mostly through slippage. Some Broker-Dealer platforms tell that they provide stock trading for 0% commission such as Robinhood, Fidelity, Freetrade, Trading212, TD Ameritrade, etc. They do not profit from slippage, instead, they earn their profits from the Market makers by directing the trades of their customers to them.
The Market markers provide a small amount of commission to the Broker-Dealers for the trades they direct. When the number of trades directed to the Market maker increases, the profit for the Broker-Dealer also increases.
Stock Trading Platforms
The key decision is to choose the right trading platform for your online trading. Do you need advanced charting? Can you trade the right markets, such as ETFs? Can you automate your trading strategy? There are a lot of important decisions to make when choosing your stockbroker, and many will depend on your trading style.
It is important to select a regulated trading platform or you may end up being cheated by fraud trading platforms. You should be so aware of selecting your trading platform.
Select your best stock trading platform
Once you enter into any trading platform, tradingcritique.com recommends checking the regulations of the trading platform without fail. The regulations of the trading platform will always be displayed in a very accessible place on the website so that the customers can easily notice it.
The unregulated trading platforms does not mention any regulations on its website. To cross verify the Broker-Dealers’ regulations, you can check for the official Broker-Dealer Companies’ certification on the websites of the respective regulatory bodies.
All the Legit Broker-Dealer platforms which are regulated are present in the Broker reviews section of tradingcritique.com. Check for your Broker there, if you do not find the broker it is likely that your broker is not regulated.
To know more about the Broker platforms you are looking for, please give the website link of the Broker platform in the comments section or you can ask your queries about the Broker platform here. We will respond to you after checking the regulations of the Broker platform and will guide you further in your trading journey.
Analysis of stock trading
To fetch more profits in stock trading it is important to do your Analysis. An analysis is a practical way through which you can succeed in your stock trading. There are two types of analysis used in stock trading namely Fundamental analysis and Technical analysis. Both types of analysis is used for different types of stock trading which are explained in detail below.
Fundamental analysis in stock trading
Fundamental analysis is the most important analysis which has more scope in stock trading. It has got its importance from stock trading. Fundamental analysis is the basic analysis that is done by analysing the different aspects of companies in which you plan to buy stocks. Hence, it is simple and does not need much technical knowledge for fundamental analysis.
You analyse the company’s history, growth of the company, type of business in which the company is involved, your understandability of the Company’s business, etc in the Fundamental analysis for stock trading.
You indeed must invest only in the companies in which you understand their type of business. It is a thumb rule. If not followed it may eventually lead to more losses as you are not aware of the technicalities of the companies’ businesses.
Other things which you should chiefly analyse and follow in the Fundamental analysis are about,
- Corporate board members,
- Protocols followed by the company,
- Working environment,
- Attitude of the board members,
- Working staff culture,
- Company’s management,
- Company’s financial statements,
- Company’s Balance sheets,
- Company’s income statement,
- Company’s liabilities and
- Assets of the company.
Other things which you should chiefly analyse and follow in the Fundamental analysis are about,
- Corporate board members,
- Protocols followed by the company,
- Working environment,
- Attitude of the board members,
- Working staff culture,
- Company’s management,
- Company’s financial statements,
- Company’s Balance sheets,
- Company’s income statement,
- Company’s liabilities and
- Assets of the company.
To do your technical analysis,
- Select the stock you want to trade,
Analyze the patterns and the trends followed by the stock prices in the past and
- Predict the future price movements before placing the trade.
Technically analysing your stock trades will consequently lead to profits. Technical analysis of Stock trading is in itself a vast subject. A trader should put her/his personal efforts to learn more about technical analysis in detail. A well-versed knowledge in technical analysis is essential if a trader does Day trading or Scalping in stocks.
Read our article on Technical analysis in stock trading and Essential Stock Chart Patterns to save your stock trades to build your knowledge base.
Trading plan for Stock trading
Having a stock trading plan will help you to proceed with your stock trading without any confusions. A trading plan will give you a clear process of what you should do for your stock trading. It is difficult to have a profitable trade without a proper trading plan. You will incur more losses if you trade without a plan because you are not prepared to face anything in your trade in a rationally and technically sound manner.
A simple stock trading plan which you can follow as a beginner are as follows,
- Decide how much money you are going to invest in your stock trading. You must decide how much time you can consistently spend in stock trading.
- Decide what kind of trading you are going to indulge, whether in centralized stock exchange trading or stock derivatives trading or Over-The-Counter (OTC) stock trading.
- Choose the best Broker-Dealer platform for the type of stock trading you select, looking into its regulations. It should provide varied options of stocks for you to trade.
- Select the stocks you are going to indulge in trading.
- Study the past, present and future of the specific stocks you selected before you place an order.
- Do the fundamental analysis and technical analysis for your stock.
- Have your own stock trading strategy for each and every stock trades.
The above seven steps provide a simple and effective stock trading plan. This should definitely be followed even if you are Beginner to Stock trading. Have your own list of some important steps to follow in your stock trading plan.
Trading Strategy for Stock trading.
Trading strategy is the most important part of the trading plan. It is a unique trading plan which you develop for yourself. A trading strategy will define even the small aspects in your trade plan such as when you will start your trade, how you will be placing your order, what kind of order you will be choosing, etc.
Some basic stock trading strategies you should follow as Beginner are,
- Practice your stock trading consistently.
- You should make stock trading as your skill.
- Be disciplined while trading in your stocks.
- Control your emotions during each and every step of your stock trading.
- Know the risk-reward ratio of your every stock trade.
- Plan all the steps that you should be proceeding with, in each of your stock trades.
- Record all your data about your stock trade in a trading diary.
Following these trading strategies mentioned above can change you from a Beginner to an Expert in stock trading. As you learn more in stock trading you can develop your trading strategies list according to your requirements. You can add on your Trading strategies to the above list as you get to experience in stock trading.
Common trading mistakes you commit in-stock trading
Trading mistakes in stock trading are some minor faults you commit due to small negligence. Mostly the trading mistakes are committed without awareness and knowledge about stock trading. Sometimes you may do it even knowing that it is a mistake that may finally end up in a tragedy. For Example, you do your stock trades believing in luck, even though you know it is risky. You may also neglect to do your fundamental and technical analysis.
Some common trading mistakes committed by the stock traders are,
- Not getting completely educated about ‘what is stock trading?’.
- Not following a stock trading plan and a stock trading strategy.
- Believing in the words of other stock traders.
- Not believing in fundamental and technical analysis in stock trading.
- Not being practical and rational most of the time. Being emotional and irrational.
- Not updating yourself with current trends of the stocks you hold.
- Risking more money in stock trading which you cannot afford to lose.
You must try to avoid the common trading mistakes which are mentioned above.
Steps to be followed to start your stock trading
The first step to start your stock trading is to complete your stock trading plan. Once it is done follow the upcoming steps,
- Open a Live account in the Broker-Dealer Platform you have selected.
- Now deposit the money in your trading account.
- Select the stock you want to trade-in.
- Do your fundamental and technical analysis.
- Confirm the trading strategy for this trade.
- Place the order giving all the details required for the trade such as when to open and close your trade, order type, etc.
- Follow up with your trade.
- Finally, win your trade as pre-planned.
Trading is a field where you can expect losses. No kind of trading can be 100% successful. Stock trading also involves risks. A successful stock trader is the one who understands this concept better. You should increase your profits when compared to your losses. You should balance your risk-reward ratio well to increase your rewards in stock trading.
Traits to become a successful stock trader
To become a successful trader in stocks you must holistically practice the above-mentioned steps. You can win over your stock trading by following the above steps with discipline more consistently. This will provide you with good profits and will reduce your losses.
All the steps which are mentioned above are the traits that you should follow to become a successful trader in stock trading.
To repeat a few of the important traits:
- Having your own trading plan and trading strategy.
- Following a stock trading diary.
- Doing your stock trades with discipline.
- Developing stock trading as your skill.
- Practising your stock trading gradually with consistency.
- Educating yourself regularly about the stocks you hold.
- Having a curiosity to learn more about the techniques and nuances in stock trading.
When you are a beginner, it is important you have a mentor for your stock trading. Because when you do not know how to trade in stocks then it is difficult to proceed with your stock trade successfully. Trading Critique can help you on this, as we can assign you a stock trading expert as your personal mentor for free. Give your details here and we will contact you back.
If you do your stock trading with the mindset to earn money in less time, you always lose in any kind of stock trading. A person who believes in consistent work, rationality, analysis, and work on stock trading as a business is the one who wins over the stock trading and is a successful stock trader.
Why should you Trade Stocks?
Trading stocks is active and cheering. They are quite easy to buy and sell. Stock trading is one of the oldest types of trading. Trading started with stock trading and all other kinds of trading which are available now started after that. Stock exchanges were the ones that were well-established before hundred years and stock trading happens even now in those old exchanges.
The market is quickly approachable with improvised technology. Analysing deeply on the liquidity and price movements of the stocks in the short term is certainly reasonable to make successful trades.
Stocks are relatively simple and easy to understand. While trading is difficult to understand in the technical world of cryptocurrencies or forex, you can get to embrace with extreme happiness and promising pitfalls of Google and Facebook far easier.
In stock trading, you must concentrate on fundamental analysis most of the time whereas in other types of trading you must mostly concentrate on technical analysis. So, identifying your perfect stocks to trade in online is not so difficult as it is in other markets.
In Stock exchanges, trading in just the stocks and the exchange-traded derivatives do not require technical analysis and just following te companies’ development from which you bought the stocks is enough to win in those trades.
But when you trade stocks in Over-The-Counter (OTC) derivative contracts it is essential to do technical analysis. When you use exotic options like binary options, CFD or spread betting it is essential to do technical analysis in such kinds of stock trading. Because in these trading you profit from small price movements of the stock market.
Centralised stock exchanges in various countries are well regulated. Trading in the stock exchanges is one of the best places to trade stocks and exchange-traded derivatives. To trade in the stock exchanges do you need a Broker firm through which you trade in the stock exchanges. As a trader, you cannot directly trade in the stock exchanges. Only through a Broker, you can trade in the stock exchange.
You should be so cautious to trade in Over-The-Counter (OTC) markets. Because there may be unregulated brokers and you may lose money if the Broker platform in which you execute your trade is not regulated. So, before you start trading in any OTC Broker platforms ensure that you know about their regulations.
Impact of Stock trading.
Stock trading which is present from ancient times has impacted the economy of the surrounding and society in which it was practised. Primary stock trading helped the companies to bring in a lot of investors. This helped in the development of the company to reach another level.
Primary stock trading also paved way for the common mass to become investors. A person who just earns a salary every month can also be an investor of a big company like Tesla by owning the stock of Tesla company.
A company needs specific eligibility to become a publicly listed company. But start-up which does not have that eligibility cannot be publicly listed in a centralised exchange. A solution for this is selling the stock of a start-up company in Over-The-Counter (OTC) markets. This helped in the development of the company from the very start.
Stock trading started with primary stock trading. Now the Secondary stock market is larger than the primary stock market. There are different types of stock trading such as stock ETFs, OTC traded derivatives, etc. This will be ever-growing, and new different methods of stock trading will increase day by day till the people are interested to trade in the stocks. Knowing about the type of trading completely before entering into any trading platform will help you to win in your stock trades.
Stock Trading- Is it Profitable?
Let tradingcritique.com answer this confusing question of all time.
Hundreds of millions of stocks are traded every single day. This makes the stock market an inspiring and action-packed place to be. Many stock traders indulge in stock trading on a daily basis. They also gain profits and also lose money. It is that you select whether you want to be a gainer or a loser.
Luck is not something that decides whether you are a loser or a winner. It is your rational analysis that decides this. When you are trading, look for stock patterns that signify encouraging volume and opportunistic volatility. Follow the education provided above efficiently and practice it holistically.
Savvy stock traders will also have a clear strategy. You have to be the one to choose what kind of stock trading you want to be. Balance your risk-reward ratios and increase your profits. Making your stock trades possible lies in your hands.
Please leave your experiences in stock trading below to educate others in the comment section. Let us grow together as a community in developing our knowledge in stock trading.
Are you not aware to make profits in your stock trades? Did you lose your money in stock trading? Do not worry, tradingcritique.com is there to help you out. Give us your details here and we will contact you back.
In a Nutshell
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