The stock market and stock trading is a complicated activity that can have significant impact upon a person’s financial future. Understanding stock market basics for trading and investing is just the beginning of the knowledge needed to become a successful stock trader.
Terminology
The wording or terminology used when “playing” the stock market is one of the first stock market basics that you need to know from the start of your trading career. Do you know what a broker is? How about a bull market, bear market or dividends? These terms and others are basic terminology used constantly while trading the market and something every stockbroker and investor should understand.
Stocks: These are shares of companies that are publicly traded on the open stock market. Stocks are the most common form of trade and it is the most important term to know.- Stock Broker: This person does the stock trading and is also the person who will be making all of the negotiations for you.
- Dividends: These are bonuses, or added payments, that to stockholders at the discretion of the company’s board of directors. Essentially, this is the profit stockholders earn form the shares and one of the most important basics of investing in stock market shares. However, even though a company earns significant profits does not mean that the company must pay dividends to the stockholders. They may retain the earnings with the company. If you are investing in the share market because you need the dividend income, you need to research the dividend payment history of the company first.
- Bear market: This is a market term for what happens when a market declines or experiences loss in a significant amount. A bear market, just as with a bull market, are not the occasional daily or even weekly corrections in the stock market, but are more long-term cyclical economic trends in the market that can last several months or even years.
- Bull Market: This is when a particular stock market sees an increase or growth in the stock value. This growth needs to be seen over a continuous period to be classified as a bull market.
- Futures: These are similar to stocks, and they are also traded on the open market. The difference is these are bought against the commodities future cost, which can increase and in turn make money for the investor or decrease, losing money for the investor.
- Day Trader: This is a stock investor who buys and sells stocks during the day in an aggressive move to sell a lot or buy a lot at once, making small profits over the course of the day.
- Trading Margin: This is when an investor decides to invest only a portion of the amount of the total price of the stock. This means that he purchases an entire stock share for a partial payment with the knowledge he will sell the stock and pay the difference then. Trading margin allows both considerable profits if a trade is good, but also magnifies losses when trades are bad.
These terms are the basics of stock market investing and you should learn them and others before beginning your trading activities. It is relatively simple to think you know what you need, but in reality, there is much more to learn. Stock market basics are easily learned, though, and if you learn the terminology, you will be one-step ahead of those who jump in knowing nothing.
Once you have the stock market basics down, you need to practice using a virtual trading account or using “paper trading.” Downloading free stock trading software, or even purchasing trading software that you can get a refund on after 60 days (such as by purchasing through ClickBank) would be the next step in your career.
the Stock Investing for Dummies book is $14.95 at Amazon.com, and is a great place to begin learning stock market basics. With 48 online reviews, the book has a 4 out of 5-start rating.