If you are hoping to accumulate wealth in the financial markets quickly, trading may be an excellent option for you. In fact, there are several successful traders around the world trading stocks for a living. Stock trading is basically a way of investing that focuses on short-term profits rather than long-term gains. Though stock trading appears lucrative, a lack of knowledge can be extremely risky. If you’re an amateur investor and intend to trade stocks online, read on to learn how to begin online stock trading, how to choose stocks, and how to make profits.
What is Stock Trading?
Stock trading refers to the act of buying and selling company shares listed on stock exchanges with the aim of making a profit from price fluctuations. Traders who trade stocks online usually buy shares at a low price, hold them for a while, and then sell them at a higher price. This is where stock trading differs from stock investing, which involves purchasing and holding stocks for an extended period of time.
A ‘stock’ is a form of ownership that comes from an equity stake that the owner of the stock has in a publicly traded company. When a company goes public, its stock can be traded on the stock market. By going public, the company proprietors are able to raise more capital than they can with their private security or through bank loans. By selling its shares on an exchange through an IPO, a company can transition from private ownership to a combination of privately owned and publicly traded shares.
You can trade stocks online either by purchasing real shares or by trading the derivatives of stocks, for example, stock contracts for difference (CFDs).
Stocks vs Shares The words "stock" and "share" are often used interchangeably, but there are key differences between the two. Stocks are securities that represent ownership in a corporation. When an investor buys a company's stock, that person is not lending the company money but is buying a percentage of ownership in that company. In exchange for purchasing stocks in a given company, stockholders have a claim on part of its earnings and assets. A 'share' is an individual unit of a stock that an investor can buy or sell. For example, saying "I own stock in Apple (NASDAQ: AAPL)" indicates that you own stock in Apple and therefore own a small portion of the company equity. Conversely, if you say, "I own 100 shares of Apple," you are conveying the exact number of ownership units (shares) you own.
How do Stock Exchanges Work?
Stock exchanges are integral parts of the stock market, where most shares in public companies are traded, which means you own the stock you are trading. The purpose of stock exchanges is to bring together existing shareholders who want to sell their shares and buyers who want to buy.
Below are some examples of some of the world’s major stock exchanges:
- New York Stock Exchange (NYSE)
- National Association of Securities Dealers Automated Quotations system (NASDAQ)
- Tokyo Stock Exchange (TSE)
- Shanghai Stock Exchange (SSE)
- Hong Stock Exchange (SEHK)
- London Stock Exchange (LSE)
- Shenzhen Stock Exchange (SZSE)
- Toronto Stock Exchange (TSX)
How does stock trading work? In order to buy or sell a stock, a seller will accept a bid-ask spread – the difference between what a buyer will pay and what a seller will accept. During the execution of a trade, the seller receives the ‘bid’ price to receive their shares, while the buyer pays the ‘ask’ price to acquire those shares. Although some stock exchanges still have physical trading floors where buyers and sellers meet, the majority of the market players now trade stocks online.
Stock Trading Vs Stock Investing
While both stock trading and investing aim to profit from the stock market, the methods they use to do so differ. There is a fundamental difference between trading and investing: traders trade stocks online for short-term profits within weeks, days, or even minutes; while investors hold stocks for a longer period of time. Stock investors often hold stocks through market volatility and think in terms of years.
It is also important to note that traders and investors have different aims and objectives. Instead of considering a company’s long-term prospects, traders often focus on its technical factors. To profitably trade stocks online, predicting the future direction of the stock’s movement and making the best calculation for maximum returns are crucial.
When political uncertainty in a foreign country temporarily pushes a U.S. manufacturer’s share price down, traders often take advantage of small price differences in the market to profit. Investors, on the other hand, study a company’s long-term growth or value, then buy and hold it for the long haul.
What Moves Stock Prices?
Several factors can move share prices during a trading session and over the course of the trading day. Factors include company fundamentals like revenues and profits and external factors like macroeconomic conditions and geopolitics. Let’s take a look at each one separately.
Earnings reports — Financial reports are the main indicators of a company’s performance, usually released quarterly or semi-annually. In these reports, a company shows how much money comes in from sales and other activities, as well as how much profit is coming in. Earnings reports provide an overview of the cash flow of a company. Dividends paid by the firm also tell us their value in the future. Earnings reports are often released just before the market close, leading to a sharp rise or fall in share prices based on whether they exceed or fall short of analyst expectations.
Economics — Share price movements are heavily influenced by the performance of the main economy where a company operates. The share price of most companies tends to grow when the economy is performing well, but if there is a recession, the share price may fall even if the company has shown strong financial performance.
Politics — The stock market is greatly influenced by the policies of the government and political events such as elections and international conflicts. Particularly companies affected by policies relating to international trade may see their share prices fluctuate, as in the case of US and Chinese trade wars resulting in import tariffs.
Supply and demand — Changes in demand for products and services or changes in supply volumes may also have a significant impact on a company’s financial performance. Demographics can also affect stock demand for a company. As an example, Covid-19 pandemic lockdowns resulted in new investors gaining exposure to the stock market, which led to a surge in demand for meme stocks.
Trader sentiment — Share prices are strongly influenced by the sentiment of market participants. There is often a great deal of subjectivity among traders and investors, so stocks may often trade much higher or lower than their fundamentals would indicate. Stocks can be bought and sold based on news, competitor announcements, and data releases.
Generally speaking, it is crucial to carefully examine economic data before making any trading decisions. Maintaining a close eye on these data indicators is one of the best ways to ensure a successful investment portfolio.
Learning to Trade Stocks Online
The ability to conduct thorough research, perform deep analysis, and gain experience will make you a decent player in the stock trading game. Consequently, you may be wondering, how do you exactly learn to trade stocks online? Listed below are some tips that a beginner will find useful!
“The most important investment you can make is in yourself.” – Warren Buffet
- To begin with, you should study as much as you can. The only way you can become a part of stock trading is to understand how the stock market works and what it entails.
- If you would like to simplify your work, you might want to consider getting a broker to help you. In the world of online stock trading, there are a number of genuine brokers which you can choose from. Make sure you understand what you’re investing in before you make a decision. It’ll be easier if you do some active research and analysis.
- It is not a good idea to invest money that you cannot afford to lose. Although precautions are always taken, success cannot be guaranteed. Therefore, it is advisable to cut your coat to fit your cloth. Put your money in different stocks to diversify your investments.
- Success requires discipline. A disciplined approach is necessary to buy the right stocks at the right time. It must be adhered to religiously.
Study and research are the cornerstones of becoming a master as you trade stocks online. The process of researching and selecting the right stock requires time and effort. Having a good understanding of the two types of stock trading analysis can make all the difference.
Technical Vs. Fundamental Analysis Explained
In technical analysis, patterns of past price action are studied to identify price patterns for the stock market in order to predict how the price will move in the future. A technical analysis approach is widely regarded as an easier way to analyze a market by novice traders. For beginners, learning the basics of technical analysis and tools is enough to trade stocks online. As soon as you understand the basics of technical analysis, you will be able to apply them to any market, making it a versatile analytical tool.
The fundamental analysis, however, examines factors that may influence the price of a currency in the future, including external influences, financial statements, and economic trends. Fundamental analysis focuses on fundamental factors and economic factors, while technical analysis identifies trends in prices, which can be caused by the fundamentals on the ground.
Technical analysis is typically used by short-term traders, while fundamental analysis is preferred by medium and long-term traders as it provides a bigger picture of where stock prices are headed.
Different Types of Stock Trading Strategies
If you decide to trade stocks online, it is important to identify what type of trader you are ahead of time. Trading stocks online can be done in many ways depending on how you view the market and how long you wish to hold positions. A few of the top stock trading strategies are listed below.
1. Swing Trading Strategy:
In swing trading, traders buy stocks before they swing higher and sell them before they swing lower to profit from share price fluctuations.
When a price trend is likely to change direction, swing traders use technical analysis indicators to provide buy and sell signals. In order to achieve this, it is necessary to monitor price charts and understand momentum indicators more closely.
2. Day Trading Strategy:
A day trader looks to profit from stock price fluctuations during a trading session by opening and closing positions on the same day. The day trader usually opens more than one position during the course of the trading day but closes them before the end of the session to avoid volatility in after-hours trading which the day trader may experience after the session closes.
Discover the best Day Trading Tips and Strategies for a better understanding of this topic.
3. Scalping Trading Strategy:
A scalping strategy involves opening and closing trades rapidly, such as within hours or even minutes, in order to accumulate small profits over time. Scalpers must be disciplined in order to exit their trades quickly to take profits, as the price might suddenly move against their position and trigger losses if they fail to exit promptly. Therefore, they should be prepared to take profits when they enter a trade.
4. Trend Trading Strategy:
In trend trading, stocks are traded based on price trends that are determined by technical analysis tools. As a trend trader, you need to have a well-defined system to help you identify and follow price trends as well as respond quickly to changes in trends when they occur. A trailing stop-loss order can help traders reduce the risk of trend reversals by reducing the risk of trend reversals.
5. Position Trading Strategy:
The strategy of position trading involves holding positions open for months or years in order to speculate on the long-term direction of prices. Rather than focusing solely on the technical analysis of a stock, this strategy places a greater emphasis on the fundamental analysis of a stock.
6. News Trading Strategy:
The news trading strategy involves taking advantage of news announcements and events as soon as they happen. In order to succeed in this endeavor, you need to understand market expectations and be able to react quickly once you have received the news. The trader will have to assess whether the news event has already been priced into the stock market so that they can make a trade in accordance with that. Trading strategies that incorporate ‘buying the rumor, selling the news’ are common since markets anticipate announcements and factor them into share prices in advance.
Trading strategies come in a wide range of forms, and there is no one-size-fits-all trading style that is applicable to each trader. In case you’re new to trading and wonder what a trading style is, here’s your chance to learn what it is, leverage it, and take your trading to the next level. Check out the Trading Style: What Type of Forex Trader Are You? to learn more.
Risk-Management Tools For Stock Trading
When it comes to entering a trade at your desired price, selling the trade at a certain level, locking in profits, or avoiding further losses when the assets your trade is trading fall by a certain amount, it’s crucial to understand how to use risk-management tools like stop losses, take-profit orders, and limit orders.
The best way to avoid losing a large part of your money if you were to lose a particular stock in the event of a stock market decline is to diversify your portfolio so that no one position makes up a large part of it.
It is also possible to learn how to analyze price charts using technical analysis tools. Identifying price trends and trading ranges can help you decide when to open and close positions based on price trends and trading ranges. Learning to trade stocks better in the future can also be achieved by keeping detailed records of your successes and failures.
How to Start Trading Stocks Online in Simple Steps
Getting started with stock trading now becomes easier and more straightforward with AximTrade. Here are the 5 simple steps to trade stocks online with AximTrade.
- Open a Trading Account – To open a stock trading account, log in to your member account from AximTrade login, and click on the “+ Open Extra Account” button on the top right.
- Choose your Trading Asset – AximTrade allows you to select your trading asset along with the forex market you wish to trade. Forex, Stocks, Crypto, Energy, Commodities, Crypto and Indices are all available through AximTrade.
- Choose your preferred account type – You can choose between Standard, Cent, ECN or an Infinite leverage account. You can also choose a Demo account if you’re a beginner. Here’s how to choose the best trading account type for you.
- Name the Account – Give your account a name and create trading and investor passwords. It is not recommended that the investor password and the account password be the same. Don’t forget to use lowercase and uppercase letters, as well as numbers. Click “Done”.
- Start Trading Stocks – Your stock trading account is now ready to trade. All your accounts can be found under the “My Accounts” tab.
With a wide selection of over 70 stocks available at your fingertips, AximTrade’s traders can enjoy unlimited access to a wide selection of global stocks, with the lowest spreads, in real time. If you’re a novice in forex and finding it difficult to take advantage of market movements, you can try AximTrade’s leading CopyTrade platform and start trading like a pro from day one.
Trade Stocks Online With A Trusted Broker
AximTrade makes it easy to trade stocks online. Simply open a trading account with AximTrade and take advantage of both the stocks and forex markets with the best trading conditions and lowest capital required. Furthermore, AximTrade is also rolling out swap-free stock trading, enabling stock traders to invest in global companies and technology giants with ease. Know more about the broker’s exceptional trading conditions by checking the full AximTrade Review.
List of stocks available to trade online with AximTrade:
|ADBE.ax||Adobe Systems Inc.|
|AIG.ax||American International Group|
|BAC.ax||Bank Of America|
|BBY.ax||Best Buy Co Inc.|
|BRKB.ax||Berkshire Hathaway Cl B|
|DAL.ax||Delta Air Lines Inc.|
|DIS.ax||Walt Disney Company|
|GOOG.ax||Alphabet Inc Class C|
|GS.ax||Goldman Sachs Group|
|HD.ax||The Home Depot Inc.|
|JNJ.ax||Johnson & Johnson|
|JPM.ax||JP Morgan Chase|
|LMT.ax||Lockheed Martin Corp|
|LUV.ax||Southwest Airlines Co|
|MA.ax||Mastercard Cl A|
|MGM.ax||MGM Resorts International|
|MRK.ax||Merck & Co Inc.|
|TQQQ.ax||ProShares UltraPro QQQ|
|WMT.ax||Wall-Mart Stores Inc.|
|WYNN.ax||Wynn Resorts Ltd|
|YUM.ax||Yum Brands Inc.|
|ZM.ax||Zoom Video Communications Inc.|
A wide selection of forex pairs, commodities, indices, and cryptocurrencies is also available for traders of all experience levels at AximTrade. You can choose between several account types based on your trading strategy, experience, and investment capital. Choices include Standard account, Cent account, ECN account and Infinite Leverage account.
AximTrade offers a unique stock trading experience that you won’t find anywhere else!