The stock market could very well be scary for any new investor. There are lots of difficulties and puzzling terms that may lead to difficulties (not to mention reduction of capital) for anyone trying to obtain stock trading education. So….what should an individual do to safeguard themselves while studying the basics of the market?
My advice is to read this article, absorb the info, and then put it to practical use.
This stock trading education write-up discusses the process of buying and selling shares, and clarifies the basic issues of just how investors gain or lose cash in the market.
As you are probably aware, a share of stock is essentially a piece of the company. You, me, and the remainder of the stock holders are the genuine owners of a business. So when the firm makes money, in theory the owners (stock holders) share in the profits. Regrettably they also (at least indirectly) share in the company’s losses as well.
Here are the fundamental steps involved in the trading of stocks. This is the vital element to any stock trading education training course:
The first step would be to open an account with your helpful broker and make an preliminary deposit. Otherwise, if you feel comfortable, you can establish an account at a self-trading site like Scottrade. Obviously you need to keep in mind that self-trading businesses offer no guidance, and little to no assistance. Any stock trading education that you require will have to be acquired from a different supplier.
For purposes of illustration, we’ll start with a make believe thousand dollars.
1.We’ll use 3M as an illustration. You indicate your interest to your stockbroker, who looks up 3M (MMM). He punches MMM into his quote request program and requests the present market price (supplied by the New York Stock Exchange) which is $81.18. He makes clear to you that at $81.18, your $1,000 will purchase 12 shares, with a bit left over
2.You put in place a bid with your broker for 10 shares at the current market price. Your broker will bill you something in the neighborhood of $30 (does that seem disproportionate to you?). Your broker will then enter the order, and after that he’ll determine the exact price you will be charged for those 12 shares. Here is the math: 12 (the number of shares) times $81.18 (the present price for the shares on the open market) for a total of $974.16, plus $30 (the broker’s fee, do not forget he’s got to eat too), for a grand total of $1004.16.
3.At this point the real fun begins. Mysteriously, your broker magically finds someone prepared to give up his shares at the present market price of 81.18. Your broker will then debit your account of the necessary funds and send it to the seller. Obviously your broker also takes his $30 fee out of your account as well. It’s as uncomplicated as that! You have executed your very first transaction, with a minimal amount of stock trading education under your belt.
4.The next day, 3M shares go up to $82.18. Cool…you just made twelve bucks! Needless to say this really is a paper gain at this point. You do not really have the dough in your pocket, and you do not need to pay taxes on it as yet.
5.One week afterwards you decide to offer your position in 3M after noticing another increase in stock price. You put in a sell order at market ($83.18).
6.Once again your broker performs a miracle. He discovers a purchaser for your stock at the present price, and wraps up the sale to them. The transaction netted $998.16 for your stock, but you do not receive that much. In actuality, your broker gets to take another $30 out of your account. As it turns out, you’ll end up getting $968.16 in your account a few days later.
7.OK, now it is time to tally up the score. Your stock appreciated in worth while you kept it, so you ought to be realizing a decent profit for efforts. Unfortunately, the profits are nonexistent. Your initial investment of $1,004.16 turned into a balance of $968.16. Plainly you need additional stock trading education!
8.Fast forward to April 15 of the subsequent year. There may be some good news taken from this recent loss. There is a short-term capital reduction of $36 as a consequence of your preliminary adventure in the world of stock market investing. You can most likely deduct the loss from your gross earnings, depending upon your present situation. It’s advisable to seek guidance from a tax expert on this subject.
Hopefully this article clears up any misunderstandings on the basics of stock trades and the benefit of stock trading education.
Summary: You should think about buying and selling larger quantities of shares per transaction.
As a comparison, lets observe what would have occurred had you bought a bigger amount of shares. Suppose you purchased 50 shares of 3M at the the same price of $81.18 and sold them at $83.18. Rather than losing money on the deal, you’ll pocket a gain of $70. Obviously this shows that commissions are a big burden to the little investor. However, if purchasing large numbers of shares just does not fit in your price range, then possibly you should consider alternatives. Either no-load mutual funds or direct investment plans (DRIPs) would be beneficial alternatives. Nevertheless, that’s a debate for another day.
See Also:
- 10 Ways to Screw up Your Retirement
- Reasons People Aren’t Buying Annuities (And Why they Should)
- The Frugal Guide to Building Wealth
- The Wealthy Buy Assets, the Poor Buy Liabilities, and the Middle Class Buy Liabilities Believing They Are Assets