What is Stock Trading?

Now what is stock trading? Good question. To put it simply, stock  trading is where you buy shares in a company with the plan of selling  them later at a higher price.

I hope I do not sound flippant with the above defination. I don’t wish to make it sound that trading is easy and without risk, because it  certainly isn’t.

Most of the time to trade stocks, you need a stock broker to buy and sell stocks. They are less commonly traded using a dividend reinvestment plan (DRIP). This is where a company offers individuals the opportunity to  buy shares in their company directly, bypassing the need for a broker.

There are many different styles of trading. Some traders like to   use a buy and hold trading style. As the name suggests, this is where a   trader purchases a stock and holds onto it for a considerable period of   time before selling it.

On the other side there is scalping. There is where a trader buys  a stock with the intention of profiting from a very small move. Scalping strategies usually involve opening and closing a trade during the same  trading day.

As you are probably aware, stock prices fluctuate daily. Sometimes they rise and sometimes they fall. Stock trading is the buying and selling of stocks with the aim of making a profit on these fluctuations.

Stocks are traded (bought and sold) over a stock exchange. This is a giant marketplace where all the listed stocks can be bought and sold readily. As the major stock exchanges have huge numbers of trades   every   day, there are always buyers and sellers of the stock you may   want to   purchase. The exchange links the buyers and sellers together.

If you are new to trading stocks, you will have probably heard of some of the major stock exchanges at some point. Two of the major ones are the New York Stock Exchange (NYSE) and the NASDAQ.

Floor Trading and Electronic Trading

Some stock exchanges have a trading floor whilst others are completed electronic. You may have seen floor trading in action on the television. It generally comes across as very hectic with people looking at monitors getting emotional, talking on the phone, using   computers to   place trades and generally shouting a lot!

With floor trading a real human being links up the buyer to the seller. The NYSE  matches both buyers and sellers together manually and there are often in excess of 1.5 billion shares traded per day. It must be a huge job!

With electronic trading, there is no need for a trading floor as all trades are handled by powerful computers, automatically matching buyers with sellers. The NASDAQ exchange is fully electronic.

The Need For A Stock Broker

To buy stocks directly over the exchange you need to become a     member. The cost of this is much too high for most individual traders.     We need a middle man who is a member to buy the stocks for us.

This is where a stock broker comes in. A stock broker has membership to the major exchanges and can     buy stocks for us. However, we have the full rights and ownership to     them.

Most stock brokers charge us a fee for each stock trade that we     make. Some brokers are good, others are not so good. For detailed     reviews, check out the online stock brokers section of the site.