The stock market, also known as the share market, is what most people think of when they think of trading.  The stock market allows traders to buy or sell shares in listed companies.  How can you trade in this market, and how does trading the stock market differ from other markets?  This article provides you with some help to get started.

The stock market was initially (and still is) a way of raising capital for a company.  The company sells equity in exchange for cash.  The equity can be exchanged between parties by buying and selling the stock.  The value of the stock fluctuates with the fortunes of the company.  Also, the company shares its profits with stockholders by paying dividends for each share.

The stock market moves up and down like other markets, and the price patterns are similar, but one significant difference is that it is not as easy to short sell (sell stock you don’t own) as it is in the other markets (it is possible however).  Another difference is that the transaction costs are higher, because it is primarily an investor’s market rather than a trader’s market.  The same brokerage that is payable for buying or selling $10,000 worth of stock would buy or sell a lot larger value in the forex or futures markets.

One other difference is that there are literally thousands of shares to choose from, unlike forex which offers a relatively small choice.  Success in stock trading requires that you choose the right shares to buy or sell.  Having said that, a large number of the shares are probably not suitable for trading, as they offer insufficient liquidity, but there are still hundreds of liquid shares to choose from.  In addition, shares are affected differently by news, and sudden announcements may result in huge price movements.

To successfully trade shares, you will need to carefully control your costs, as stocks are not inherently leveraged.  This means using a discount broker, particularly one who accomodates day traders.

You will need to either hold stocks for longer, or seek out more volatile stocks.  Another recent article details some approaches that you can use to find stocks that will offer rapid gains with minimal risk.

I recommend an automated tool that can help you search through shares and find those that are liquid enough to trade, and meet your criteria for shares that will increase in price.  Tradestation and Metastock can both be programmed to scan for shares.

Apart from that, stock trading, options trading, futures trading and forex trading require similar skills.  You need to identify your entry point, determine stop losses based on the volatility of the market and decide when to exit.

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Tags: shares trading, stock market, Stock Trading

This entry was posted on Monday, March 24th, 2008 at 5:24 am and is filed under Trading Markets. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.