Stock trading

How stock trading works

Stock trading is a form of investing that prioritizes short-term profits over long-term gains. It can be risky to dive in without the proper knowledge.

What is stock trading?

Stock trading involves buying and selling shares in companies in an effort to make money on daily changes in price. Traders watch the short-term price fluctuations of these stocks closely and then try to buy low and sell high.

This short-term approach is what sets stock traders apart from traditional stock market investors, who tend to be in it for the long haul. While trading individual stocks can bring quick gains for those who time the market correctly, it also carries the danger of substantial losses. A single company's fortunes can rise more quickly than the market at large, but they can just as easily fall.

Types of stock trading

There are two main types of stock trading:

Active trading is what an investor who places 10 or more trades per month does. Typically, they use a strategy that relies heavily on timing the market, trying to take advantage of short-term events to turn a profit in the coming weeks or months.

Day trading is the strategy used by investors who buy, sell, and close their positions in the same stock in a single trading day. The aim of the day trader is to make money in the next few minutes, hours, or days based on daily price fluctuations.

Where to trade stocks

To trade stocks you need a broker. Pick one with the terms and tools that best align with your investing style and experience. A higher priority for active traders will be low commissions and fast order execution for time-sensitive trades.

Investors who are new to trading should look for a broker who can teach them the tools of the trade through educational articles, online tutorials, and seminars. Other features to consider are the quality of screening and stock analysis tools, alerts, easy order entry, and customer service.

The time spent learning how to research stocks, and experiencing the ups and downs of stock trading, is time well spent as long as you are not putting money you cannot afford to lose on the line.