Stock Trading
How Stock Trading Works
By. Silvia
online stock trading
To understand how stock trading works, it is import to first of all realize that its actual name is quite misleading. Stocks are not actually “traded”; they are bought or sold.
The buying and selling – or “trading” – of all stocks occurs on stock exchanges. These are places where people who would like to sell or purchase stocks get together in order to do so more efficiently. There are many stock exchanges around the world; some famous ones include the New York Stock Exchange, the Tokyo Stock Exchange and the Chicago Stock Exchange.
When most people think of the stock exchange, they picture scenes like those found on the floor in New York: traders running frantically around, gesturing wildly and a whole lot of chaos in general. Most of the people found on the floor of the NYSE are market makers, stockbroker and other specialists whose primary purpose is bringing buyers and sellers together at the exchange.
Electronic exchanges use complex, cutting edge computer networks to complete all of their transactions. In lieu of stockbrokers and market makers, electronic exchanges like the NASDAQ are comprised of a series of computers.
Stock Trades and Brokers
Whether it is via a stock exchange floor or through an electronic one, trades still must be facilitated by professional stockbrokers. Average stock buyers and sellers do not have direct access to the exchange; that would introduce far too much chaos into an already volatile system. Instead, brokers are used as go betweens for investors and the market.
They enforce the rules of the stock exchange. Top paid brokers actually receive a price from an investor and run it down on the exchange floor, attempting to broker a deal.
Electronic stockbrokers, like those found online, work to allow investors to make online stock trades. They act as the go between, in lieu of their human counterparts. Like their human versions, they enforce the rules of the stock exchange and follow the movements and fluctuations of the market – as well as its demands. While electronic stockbrokers generally supply similar information to that offered by human stockbrokers, they require more deduction on the part of the investor.
There are 6 mistakes that all traders in the stock trades make. These mistakes can cost amateurs and experienced traders alike to lose all of their money.
1. Do not buy what the news media tells you to. You should always decide for yourself with stock is the best pick.
2. Do not buy what a friend tells you is the next “hot pick”. This can be even more dangerous than relying on the news to make your investment decisions.
3. Do not overtrade. This is a mistake many professional traders will make. They will have developed a system that turned their $20,000 into $100,000 in 1 year.
4. Do not risk too much on one trade. As a rule of thumb you should not risk more than 2-5% of your portfolio in any one stock trade. Also don’t risk any more than 10% of your account in option trades. Risking any more than this can be dangerous to your financial future.
5. Do not bottom fish. This goes for top picking too. I’m sure many bottom fishers lost a lot of money buying Enron stock.
6. Do not stay in a losing trade. This is something I have seen a lot. Someone will buy a stock at $56 and stay with it even as it goes lower. First to $45, then to $35 and then $20.
What to do :
1. Do develop your own system is the best way to go about investing your money.
2. Do paper trade before risking any of your own real money.
3. Remember never risk more than 2-5% of your portfolio in any 1 trade. Cutting your loses short is the name of the game.
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