Stock trading basics: Definition, advantage and how to trade stocks

If you are looking for a financial tool that can generate excellent returns on small capital, you can opt for stocks. But what is stock trading? How does it work? If you are looking for the answers, you have landed on the right page. Let’s find out the answer in this article.

What do stocks refer to?

A share or stock is a kind of security through which a holder gets fractional ownership in a firm. With this stock ownership, the person gets a portion of the firm's earnings distributed as dividends. If we categorise stocks, we get two main types preferred stocks and common stocks. What is the difference between the two?

Common stocks vs preferred stocks

Common stocks: Here, the shareholder gets the sole right to collect the dividend, disturbed by the firm and the right to vote in the stockholder meetings.

Preferred stocks: These are stocks that do not provide traders with voting right in the shareholder meeting. Preferred stockholders usually get higher dividend payouts. Moreover, at the time of liquidation, they get a significant security claim compared to common shareholders.

What is stock trading?

Stock trading refers to selling and purchasing shares to gain on everyday price shifts. Stock markets usually give a regulated and secure platform or condition where financial market participants can trade in stocks and other available financial assets confidently and with negligible to low operational risk.

Types of stock trading

There are two broad types of stock trading:

1) Active trading: Active traders generally place ten or more than ten trades per month. Typically, the strategies employed by them focus on timing the market and making small gains from short term events and market movements. The ultimate goal of gold in active trading is to enhance the profit in the coming months or weeks.

2) Day trading: Day traders employ those strategies that allow them to play hot potato with the share market and stocks. They usually purchase, hold and sell their trading order on the same trading day. They do not focus on the operations of the underlying business. The ultimate aim of day trading is to create little money in the next few days, hours or minutes based on the everyday price shift.

Advantages and Disadvantage of stock trading

Advantage

Some of the advantages of trading stocks include:

The possibilities of harvesting higher returns are high over a short time interval

Through this, you can get ownership of the listed company

The stock market liquidity is high compared to other modern financial markets

The regulatory bodies secure the interests of traders

Disadvantage

Some of the advantages of trading stocks include:

Stock markets are highly volatile, and their price fluctuates suddenly.

Broker may charge high fees on trading

Many unregulated brokers in the stock market only aim at your money

How do you buy a stock?

You require an online account to sell or buy stocks. Financial service providers act as a link between traders and the financial market. So, what are the steps you need to follow to open an online account with the broker?

Visit the site and register

Upload the mandatory documents such as photos, address proof, bank statements, national id card or passport

Choose the stock and account

Deposit the fee

Start trading

The Bottom Line

If you are a neophyte, we recommend you start with a demo account for trading stock. It is a virtual and free account having services like other accounts. The only difference between a regular and a virtual account is that you get virtual cash for trading in the latter. The advantage of this account is, you can practice trade, risk strategies and check the potential of your chosen technique before entering the real trading world. You can get a free demo account with legitimate T1markets.

Frequently asked questions

1) What are stocks?

A stock is a kind of security through which a holder gets fractional ownership in a firm. With stock ownership, the person gets a portion of the firm's earnings distributed as dividends.

2) What are the advantages of trading stocks?

Some of the advantages of trading stocks include:

The possibilities of harvesting higher returns are high over a short time interval

Through this, you can get ownership of the listed company

The stock market liquidity is high compared to other modern financial markets

The regulatory bodies secure the interests of traders

3) Where can I trade stocks?

You can trade stocks with T1markets. It is a well-regulated firm authorised by CySEC under the licence number 333/17. The minimum fee to start trade with the firm is just $250.

4) Why is a demo account recommended for beginners?

The advantage of a demo account is that you can practice trade, risk strategies and check the potential of your chosen technique before entering the real trading world.