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Stock Trading for Dummies
If you are interested in making money trading stocks there are things that you need to know and do. Stock trading for dummies is an introduction to trading stocks. What is a stock? What kinds of stocks are there? Why do stock prices go up and down? How do you make money trading stocks?
What Are Stocks?
Stocks are shares of companies. They give the owner a claim on company earnings and assets. If you own a share of stock you have a vote for who it is that runs the company and other rules and regulations. A share of stock is traded on a stock exchange such as the New York Stock Exchange or NASDAQ.
What Kinds of Stocks Are There?
Stocks are either common or preferred. Most people own common stock. This is the kind of stock that you typically trade in order to make money. Common stock is what gives you a claim on company assets and voting rights. Long term investors buy stocks that they believe will appreciate in value over the years and even pay dividends. Stock traders look for stocks that are likely to up or down in value over a short time and either buy them or sell short in order to capitalize on the short term price change. Preferred stocks usually do not confer voting rights but they do offer a set permanent dividend and if the company goes out of business owners of preferred stocks get paid before owners of common stocks but after bond holders. One problem with holding preferred stock is that companies often have the right to buy back that stock without your permission.
Stock Trading for Dummies
Stocks are traded on stock exchanges or over the counter. Many traders prefer stock exchange traded stocks because these stocks trade in higher volume and liquidity. Stock markets have strict rules in regard to which stocks can be listed and companies are required to provide substantial information so that their business is sufficiently transparent that traders can make informed decisions as to where stocks prices are going to go.
Where Is the Price Going Next?
To make money trading stocks traders need to have a clear idea about where the price is going to be in a few minutes, hours, days or months. Fundamentals such as how money a company makes and how much debt it carries eventually determine the price of a stock. But everyone who trades stocks makes an educated guess as to how these fundamentals will evolve. Technical analysis of price patterns helps traders determine how market sentiment regarding a stock is evolving and where the price is going next. Small companies that are thinly traded are not good candidates for technical analysis. The better choice in this case is to study small companies and discover things that the market has overlooked and then trade accordingly.
Options
Many traders forego trading stocks directly and make money trading stock options.
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