{"id":216298,"date":"2020-02-21T12:53:21","date_gmt":"2020-02-21T17:53:21","guid":{"rendered":"https:\/\/insidebitcoins.com\/?page_id=216298"},"modified":"2024-05-14T06:09:33","modified_gmt":"2024-05-14T06:09:33","slug":"stock-trading","status":"publish","type":"page","link":"https:\/\/insidebitcoins.com\/stock-trading","title":{"rendered":"What is Stock Trading? Learn to Trade Stocks Now"},"content":{"rendered":"
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Stock trading can be a good way to make a return on your money, but if you’re a beginner, you may feel overwhelmed. You never know which are the best trading platforms<\/a>, or how trustworthy they are. So how do you get started?<\/p>\n

Read on to find out the answers to all these questions in this comprehensive guide for beginner traders. We will cover everything you need to know about stock trading including how to buy, trade, sell and hold stocks and evaluate the best platforms; as well as provide useful tips for new investors, and the terminology all stock traders need to know.<\/strong><\/p>\n<\/div>\n<\/div>\n<\/div>\n

Step 1: Choose your stock trading platform<\/h2>\n

The first step to trading stocks is to choose a reputable online stock broker platform where you will feel adept and secure placing your trades. Some of the most important factors to consider when choosing a stock broker are cost, regulation and stocks available to trade. In order to make profitable investments, you will need to choose a stock broker with low fees. You should also choose a regulated platform to ensure fund protection, and other added security features. Finally, you should consider a broker with a good range of stocks to choose from, as this will allow you to build a diversified portfolio and offset risk.<\/p>\n \n

Step 2: Open your stock trading account<\/h2>\n

Once you’ve picked your stock broker, it’s time to trade stocks.<\/p>\n

Register with your chosen stock broker<\/h3>\n

Fill in your name and email, then select individual, joint or IRA as the type of brokerage account to open.<\/p>\n

Most brokers will require you to enter your personal information such as name, address, phone number, birthdate, country of citizenship, and security question and answer. Some may also ask for your marital status, number of dependents, and Social Security number for tax purposes.\u00a0 This is necessary to ensure that the investor is not an employee of a securities business, a director of a major corporation, or a senior political figure.<\/p>\n

Specify your experience level<\/h3>\n

You will then be prompted to provide some information about your previous experience trading stocks, as well as your investment objective, time horizon, liquidity needs, and risk tolerance. Indicate whether or not you want a margin account, allowing you to borrow money from the broker to trade securities.<\/p>\n

Verify your identity<\/h3>\n

Most platforms will then ask you to attach and submit proof of identity and a utility bill for verification. The KYC process can be completed within a matter of minutes, or can take a couple of days, so be prepared in case you need to wait.<\/p>\n

Deposit funds<\/h3>\n

You will then be able to deposit funds into your account to begin live stock trading. The deposit process can be done via wire transfer from a bank. We recommend that you deposit via bank transfer in the base currency of the investor\u2019s home country so that currency conversion fees won’t be charged. The transfer could take up to three days. Some platforms accept deposits from SOFORT and Trustly deposit service providers, which can take as little as 30 minutes.<\/p>\n

Step 3: Buy stocks<\/h2>\n

Once your deposit is reflected in your account balance, stock trading can begin. You can buy stocks<\/a> outright or open a margin account and trade using leverage. Some brokers will lend you money to trade up to 5x (10x\u201320x for professional traders) your account balance. It is important to keep in mind that margin trading allows you to increase your potential gains, but if the trade turns against your position, your potential losses are also magnified.<\/p>\n

Before you begin trading with real money, taking these few steps will help you reduce your risk of losses. Firstly, ask yourself whether you have a good understanding of the essential terms you need to know in stock trading. Once you feel confident that you understand the basics, consider which stocks to buy and invest in. Finally, choose a stock trading strategy and stick to it. For information on all these points, continue reading this guide. We\u00a0explain the essential terminology, how to find hot stocks to buy and how to decide on a strategy that will work for you.<\/p>\n

If you’re ready to trade, here’s how to place your order:<\/p>\n

    \n
  1. Navigate to your stock trading account and search for the name of the stock you wish to buy in the search bar.<\/li>\n
  2. Click on TRADE<\/li>\n
  3. Select whether you wish to Sell (short) or Buy (long)<\/li>\n
  4. Specify the amount of capital you wish to invest in this trade. If you want to buy the physical stock in full, select 1x (no leverage). If you want to use leverage, select your leverage multiplier.<\/li>\n
  5. Set your Stop Loss<\/li>\n
  6. Set your Take profit amount<\/li>\n
  7. Once ready, click on SET ORDER. Your trade will be executed immediately and you will own the stock you purchased. If using leveraged trading, your trade will be processed as CFDs.<\/li>\n<\/ol>\n

    Learn the essential stock trading terminology<\/h2>\n

    When you’re starting out with stock trading, it’s crucial that you are familiar with the different trading terms, terminology and jargon used. Here are a few of the most important definitions every investor should know.<\/p>\n

    How to Do Fundamental Research on a Stock<\/h2>\n

    Warren Buffet is famous for advising investors to \u201cinvest in what you like and what you know.\u201d But if the company does not have strong fundamentals, the successful value investor will not invest in it. Fundamental analysis is used to determine if a stock is undervalued or overvalued relative to its industry group and the broader market. Investors look at growth in revenues, earnings, profit and operating margins, expenses and other measures of financial performance to get a snapshot of past performance.\u00a0<\/span><\/p>\n

    While no 100% accurate stock prediction tools exist, past performance together with management and analysts growth estimates for the company and industry can provide an indication of future performance. If you look at company and analysts hits and misses on quarterly earnings forecasts, you will find that they are usually very close to actual financial performance.\u00a0<\/span><\/p>\n

    Once you have chosen your investment strategy, choosing the right fundamental stock analysis ratios becomes easy. Ratios are calculated over a certain time period (quarterly, annually, trailing 12 months).<\/p>\n

    Value Stocks<\/h3>\n

    Value stocks are stocks currently trading below their intrinsic value with the expectation that the stock price will move in line with the intrinsic value in the future.\u00a0 <\/span>Value investors seek low price-to-earnings and price-to-book ratios to identify stocks with strong fundamentals that are trading below their intrinsic value.<\/p>\n

    Growth Stocks<\/h3>\n

    Growth stocks typically have a five-year average growth rate of 10 percent or more. Though typically small-to-medium sized stocks, Amazon (Find out more about how to buy Amazon stock<\/a>) and Facebook (FB) are examples of growth stocks that quickly grew into high market capitalization stocks. Growth investors seek high price-to-earnings and price-to-book ratios to identify stocks that are increasing profits and\/or revenues at a faster-than-average rate. If a growth stock has not yet recorded a profit, price-to-sales or price-to-cashflow ratios may be compared to those of industry peers.\u00a0<\/span><\/p>\n

    10 Key Stock Valuation Ratios<\/h3>\n

    Price-to-Earnings (P\/E)<\/b> – Stock Price\/Total Earnings – A measure of how much profits a company is earning per share, a P\/E within the lower 10 percent of an industry group would indicate the stock is undervalued relative to its peer group.\u00a0<\/span><\/p>\n

    Price-to-Earnings Growth (PEG)<\/b> – (P\/E\/annual earnings per share growth) – The PEG considers future earnings growth, and therefore can be a more reliable measure than P\/E. A PEG of less than one indicates the stock is under valued. Estimates of growth rates can vary significantly.<\/p>\n

    Price-to-Book (P\/B)<\/b> – Stock Price\/Book Value Per Share (total assets \u2013 total liabilities) The P\/B is what the company would be worth in bankruptcy after all the debt was paid off. Value stocks typically have a low book value.<\/p>\n

    Debt-to-Equity (D\/E) <\/b>(Debt\/Equity) – The D\/E ratio is a measure of the leverage of a company. A company with high D\/E has a higher risk of insolvency.\u00a0<\/span><\/p>\n

    Dividend Payout Ratio (DPR)<\/b> (Dividend per Share (DPS)\/EPS) – Value stocks often return profits to shareholders in the form of dividend payouts. The stock of companies with consistent and steadily increasing dividend payouts tend to perform better. Growth stocks tend to reinvest capital in the business, and mergers and acquisitions rather than pay dividends.<\/p>\n

    Earnings Per Share (EPS) <\/b>(Net Income \u2013 Dividends\/Weighted Average Common Shares Outstanding) – A measure of profits made per share, look for 5\u201315 percent growth over at least five years.<\/p>\n

    Price-to-EBITDA <\/b>(Price\/EBITDA) – Although the profit margin (Sales \u2013 Expenses) is a measure of profitability, it does not necessarily reflect operating efficiency. EBITDA (earnings before interest, taxes depreciation and amortization) strips out non-operating expenses to provide a picture of operating efficiency. Look for a price-to-EBITDA that is above the five-year average.<\/p>\n

    Return on Equity (ROE)<\/b> (Net Income\/Shareholder\u2019s Equity) – ROE provides an indication of how effectively a company is using its investments to grow earnings. Look for an ROE that exceeds the five-year average ROE.<\/p>\n

    Price-to-Cash Flow (PCF)<\/b> (Stock Price\/Cash Flow Per Share) – Some analysts consider this metric more important than the PE. A company without cash will go out of business. When compared to other companies in an industry, a low PCF indicates a company is undervalued.\u00a0<\/span><\/p>\n

    Price-to-Sales (P\/S)<\/b> (Total Shares\/Market Capitalization) – The P\/S tells you how much sales a company is generating per share. A P\/S ratio less than 1 is excellent, and between 1 and 2 very good (Investopedia).<\/p>\n

    Calculating all these ratios may seem like a lot of work. Fortunately, most online investment sites (Yahoo, Investors.com, Morningstar.com etc.) provide these ratios for publicly listed companies. Better still, you can create stock screens with all your preferred valuation ratios and a list of stocks that meet your criteria will be generated for you.\u00a0<\/span><\/p>\n

    Which stocks should I trade?<\/h2>\n

    Once you’ve settled on where to trade and buy shares of common stocks, the next question is \u2013 which stocks and when? Choosing which shares involves fundamental analysis and deciding when to trade requires technical analysis.<\/p>\n

    You will also need to consider recent news, earnings reports and analyst estimates.<\/p>\n

    Luckily, we have carried out the research for you, and identified the best stocks to trade using our own fundamental and technical analysis. Read on for our top stock picks for 2021.<\/p>\n

    Boeing (BA)<\/h3>\n

    \"\"<\/p>\n

    Boeing (BA) lost 15% of its market value from March 1st<\/sup> to March 15th <\/sup>2019, which included the crash of Ethiopian Airlines 737 Max 8. Boeing may be worth a closer look. According to the Wall Street Journal<\/em>, \u201csuch accidents, however tragic, do surprisingly little damage to the business of selling aircraft.\u201d Analysts project Boeing\u2019s earnings growth to continue at over 20%, and based on five-year dividend growth, the stock is selling at a deep discount to its intrinsic value. Technically, Boeing has not yet retreated to its 200-day moving average, so most investors who have bought the shares over the last year still have potential to profit.<\/p>\n

    Airbus SE (EADSY)<\/h3>\n

    \"\"<\/p>\n

    While Boeing retreated, Airbus SE (EADSY) advanced. Airbus analysts also predict greater than 20% growth, but since the stock is selling at a significant multiple to its intrinsic value, Airbus is no bargain. Airbus, which closed 2018 at $23.78 per share, had risen 40% by March 15th<\/sup>. On the chart, Airbus broke through its 200-day moving average in January and went on to establish a new all-time high.<\/p>\n

    JPMorgan Chase & Co. (JPM)<\/h3>\n

    \"\"JPMorgan Chase & Co. (JPM) is the largest bank in the United States and the 6th<\/sup> largest in the world after five Chinese banks. It pays a dividend yield that is higher than the benchmark US 10-Year Treasury Bond, and that rate has been growing at an average of 15%. Analysts expect earnings growth in the single digits, but banks do well in times of rising interest rates because they lend at higher rates while delaying increases in the interest rates they pay out. The share price began a downtrend after reaching an all-time high in September of 2018.<\/p>\n

    Barclays PLC (BCS)<\/h3>\n

    \"\"<\/p>\n

    Barclays PLC (BCS) is the second-largest bank in England after HSBC Holdings (HSBC), which was founded in Hong Kong. Barclays\u2019 low share price does not indicate value as it is selling at over 23 times current earnings, and both earnings and dividend growth have been negative. Barclays\u2019 chart shows the price trend flattening, but the 200-day moving average seems to be approaching the share price rather than the other way around. Check out our guide to buying Barclays stock<\/a> here.<\/p>\n

    Verizon Communications Inc. (VZ)<\/h3>\n

    \"\"<\/p>\n

    Verizon Communications Inc. (VZ) was formed as the result of a 1999 merger between Bell Atlantic and Vodafone (VOD). Verizon had over 150 million subscribers as of the fourth quarter of 2018, 10 million more subscribers than AT&T and more than twice as many as T-Mobile US. Very much like an electric utility, its revenue is secure\u2014no one gives up their phone. It pays an attractive dividend that has been growing and is trading at a discount to its discounted cash flow intrinsic value. Verizon looks on the verge of entering a solid uptrend, trading above both its 200-day and 50-day moving averages.<\/p>\n

    Vodafone Group PLC (VOD)<\/h3>\n

    \"\"<\/p>\n

    Vodafone Group PLC (VOD) has been in the wireless telephone business as long as wireless telephones have been available, but lately it has struggled to produce profits. Earnings growth has been negative, but they do pay an attractive and growing dividend that is double the US 10-year Treasury and a multiple of the UK 10-year Gilt. The VOD chart indicates no sign of share price recovery.<\/p>\n

    Decide on a stock trading strategy<\/h2>\n

    We would recommend you also decide on a plan of action before trading in stocks. A good stock trader is a disciplined stock trader, and a disciplined stock trader has a trading and risk management plan. Your stock trading strategy should help you make profits while offsetting risks.<\/p>\n

    First and foremost, determine your risk tolerance. Both day traders and active traders have a much higher risk tolerance than a buy-and-hold long-term investor. They often use highly leveraged short selling strategies \u2013 selling securities they have borrowed on margin from their stock broker in the expectation that the stock price will decline \u2013 to maximize their gains. The day trader is a higher risk taker than the active trader holding positions for days or weeks.<\/p>\n

    Once you know your risk tolerance (how much you can afford to lose), determine whether you consider yourself an active trader or a day trader. Both types of traders use technical analysis tools to predict future price trends, and when to get in and out of the market.<\/p>\n

    An active trader is an investor who does not necessarily trade every day. The main goal of the active trader is to profit from short-term events.<\/p>\n

    Day trading, however, involves placing dozens of trades in a single day.<\/p>\n

    Below, we review some of the most common stock market trading strategies.<\/p>\n

    Day trading<\/h3>\n

    \"\"<\/strong><\/p>\n

    The day trader has several positions open at any one time and ensures all their positions are closed before the market closes. As a day trader, you may buy 100 shares of a given stock for $50. A few minutes later, when the stock moves up to $60, you might sell, resulting in a $1,000 profit on the trade. Day traders typically look for low entry points in the morning, and exit later in the same day, when the stock price has gone up.<\/p>\n

    Swing trading<\/h3>\n

    \"\"<\/p>\n

    In swing trading, as opposed to day trading, positions are held for longer than a single day. With this strategy, the trader attempts to make profits over a period of a few days to several weeks. Swing traders use technical analysis tools to identify trading opportunities and the right time to exit \u2013 when a sufficient price movement warrants a reasonable profit.<\/p>\n

    To trade stocks using a swing trading strategy, you will need to select large-cap stocks (shares of a company with a market cap of more than $5 billion), which tend to swing between high and low within a matter of days or weeks.<\/p>\n

    Scalping<\/h3>\n

    \"\"<\/p>\n

    Scalping is a trading style best-suited to investors who like to grab small profits fast and move onto the next opportunity.\u00a0 As you can see from the chart above, rather than holding a stock for hours, days, or weeks, as a scalper, you will attempt to make profits within as little as a few minutes.<\/p>\n

    Scalpers use technical indicators to identify short-term opportunities. For a scalping strategy, you will need to be able to read complex charts and identify trends quickly. Given the speed, you will also need a strict exit strategy because one wrong trade could wipe out all your small gains.<\/p>\n

    Trend following<\/h3>\n

    \"\"<\/p>\n

    In trend following, the investor buys a stock when its price trend goes up, and sells the stock when its trend goes down. Traders use four main technical indicators in this strategy : moving averages, MACD (Moving Average Convergence Divergence), RSI (Relative Strength Index) and On-Balance Volume (OBV). The aim of these indicators is to alert traders of a trend formation. The investor will act on the trend, assuming that the stock price is likely to follow a given pattern, and decide whether to sell or buy.<\/p>\n

    Position trading<\/h3>\n

    \"\"<\/p>\n

    If you’re looking to hold a stock for a long period of time such as months or even years, then position trading should be your strategy of choice. In this strategy, stock traders will ignore short-term market fluctuations and focus on a long-term capital appreciation goal. This could be a suitable strategy for the investor who does not wish to trade often, or simply doesn’t have the time to do so. As always, however, position trading will require the trader to analyse price charts and use technical indicators to make smart stock predictions<\/a>. Position traders tend to analyse support levels and resistance levels to decide whether to close or hold their position.<\/p>\n

    This trading strategy has a great potential for profit, as generally the risk of losses is reduced over long- versus short-term trading horizons.<\/p>\n

    How much money can you make with stock trading?<\/h2>\n

    \"\"<\/a><\/p>\n

    There is no one-size-fits-all answer as to how much money you can make when trading stocks online, as this will depend on a number of factors. At the forefront of this is the performance of the company itself, as well as the underlying economy.<\/p>\n

    For example, if the company that you have invested in is growing at a faster rate than it did in the previous year, then it’s likely that the value of your stocks will go up. Similarly<\/span>, if the US economy is performing well – as it has done in recent years, then again, it’s possible that your returns will increase.<\/p>\n

    With that said, before we can assess the types<\/em> of returns possible in dollars and cents, we need to explore how stock trading profits are realized – capital gains and\/or dividends.<\/p>\n

    Capital Gains<\/h3>\n

    The first avenue that will allow you to make money when trading stocks is in the form of capital gains. In its most basic form, capital gains occur when you sell your investment at a higher price than you paid.<\/p>\n