Stock Market Trading Basics

Most people recognize that the most practical waycombination or the two. This where the smaller
for middle class America to make a fortune is eitherinvestor is at a disadvantage over a larger one. Let's
in real estate or stock market trading. Unfortunately,say you want to own 1000 shares of XYZ, but you
while most people understand how to make moneycan only afford to buy 200 shares at a time. You
in real estate few have the money, and likewisehave two choices: either make 5 separate purchases
while most have the money to make a fortune inand pay the fee each time or save up enough to
stock market trading few understand how it works.buy all 1000 shares and hope the price doesn't go up
This article is geared towards those who really don'ttoo much in the meantime.
know anything about the market, so please excuseSince many large company shares can cost $30 and
me if you're an experienced trader and I overup it may make more sense for the smaller investor
simplify things. Let's start with the basics. What isto buy lower priced shares which often have a larger
stock and how do you trade it? "Stock" is actually aprice increase overtime. This helps offset the cost of
partial ownership in a company. What you actuallybuying and selling. Let's say you buy 1000 shares of a
buy is a share of that ownership. Let's say astock that costs $10 a share. If the price goes up
company divides its assets into 100 equal shares. If$2.00 you have made a 20% profit minus your
you buy 1 share you technically own 1% of thebroker fees if you sell. It cost you $10,000 dollars
company.and you sold for $12,000 minus fees. Not bad.
That share also gives a 1% vote in how theYou might have bought twice as many shares of
company does business. The cost of that share isanother stock at only $5.00 a share. If that stock
determined by the market's perceived value of thatgoes up $2.00 you would have potentially made 40%
share. Since a company's actual assets and liabilities isor $4,000 profit on the same $10,000 investment.
fluid the price doesn't actually represent the actualWhile the likelihood of a $5.00 share going up $2.00 a
worth of that share but rather what a buyer is willingshare is less likely, the potential reward is greater.
to pay for that share. If the company makes aAnd a small investor with little money to invest can
profit; the profit is equally divided among all sharessometimes reap even bigger profits by investing
minus any money the board decides to reinvest intowhat is known as penny stocks; those shares that
the company or keep as an asset. These are calledtrade for under a dollar. These stocks can sometimes
dividends.double or triple in value in a very short period of time.
Since most companies issue millions of shares ofThe disadvantage to trading in penny stocks is of
stock, your actual vote is pretty meaningless since acourse trying to pick winners and losers. Most of
core group keeps enough of the company's stock inthese smaller companies have no track record so the
their own personal control so they will have aamateur investor may not be able to tell the
majority vote on all company decisions. The realdifference between a low priced stock that is about
reason that you want to own stock is to collectto take off or one that is low because the shares
those dividends or to sell your shares when the priceare really not worth anything now nor will they be in
of the shares increase, thus making a profit.the future. For this reason a small time investor
All stock market trading is done through official stockshould not be trading in penny stocks without getting
exchanges. The actual buying and selling is performedsome serious market research to back him up. In
by stock brokers who are allowed to trade in thefact no stock market trading should be done without
exchanges. Every time you buy or sell stock theseit.
brokers take a percentage, a flat fee, or a