The stock market, a marketplace of sorts that allows investors (called “shareholders”) to purchase shares of a company’s stock with the intent of eventually selling them at a higher price, is a great place to invest your money if you’re the risk-taking type of person. Stock trading usually requires acquiring a stock broker, which is basically the middleman who buys and sells shares directly from market makers or Agency Only Firms to investors. However, investors can also use a dividend reinvestment plan (DRIP) to purchase stocks directly from a stock broker’s sources instead, although this is less common. Stock trading itself comes in many different styles, one of the more common ones being purchasing shares and holding on to them while monitoring them before selling them, usually for a higher price unless the trade is made out of panic due to heavily declining stock prices.
Another common stock trading style is known as “scalping”, buying a stock with the intent of only slightly profiting from it by selling it very quickly, usually within the same trading day as stock prices rise (or possibly fall) throughout the day. Stock prices are known to rise and fall constantly throughout a trading day, and stock trading relies on these fluctuations in order for shareholders to profit.
All stock trading takes place through a stock exchange, two major examples including NASDAQ and the New York Stock Exchange, which sees an astonishing number of trades every day. Stock exchanges differ in type, as some like the NYSE practice floor trading (where trades are hooked up manually through people) while others like the NASDAQ match buyers and sellers electronically.
The problem with buying and selling stocks directly through a stock exchange is its tremendous membership cost which most people cannot afford, which is why there is the need for a stock broker in most cases. The stock broker only assists in buying and selling, and does not own any rights to a customer’s share(s), although they do charge a fee for their services. Shareholders are free to buy and sell their shares whenever they’d like for the price available at the time of the trade.
The stock market is a very risky place to invest one’s money in hopes of potentially profiting heavily from it, as this is not always the case by any means. To succeed in stock trading, it is essential that one becomes fully educated in the company of the shares he/she is purchasing and of the stock market in general. Even then, there are always risks and it is very important to be cautious and smart about investing in the stock market and engaging in share trading.
NAB OnLine is launching a brand new stock trading. platform to be launched in 2012, FinanceSeek will be reviewing the platform once it’s released.
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