Stock trading is one of the most popular ways for traders to trade on the financial markets. The stock market is made up of different stocks that can be bought or sold over various exchanges.
Success in trading depends on choosing the right stocks to trade, regardless of level of expertise. In this article, we’ll explore stock trading in detail, covering everything from the basics to the strategies you can use to succeed.
What does a stock trader do?
A stock trader buys and sells shares of companies through a stock exchange or broker, which can be either an individual or a company.
Trading shares involves making decisions based on expected movements in stock prices. Those who focus on this activity regularly, either as a profession or personally, are known as stock traders.
More about stocks
Stocks are financial instruments that represent a shareholder’s ownership in a public company. Companies issue stocks for different reasons, such as to raise capital or fund expansion. These shares may be bought by investors who believe the company will do well in the future.
This ownership generally entitles shareholders (investors) to a share of the company’s profits, either through dividend distribution or an increase in share value. However, shareholders may see a decline in the value of their portfolio if the company performs poorly and experiences losses.
Types of stock trading
The different types of stock trading are defined by the timeframe, strategies, and tools used by traders. Here are the main types:
Day trading
Day trading involves buying and selling stocks within the same day, often within minutes or hours. Day traders aim to profit from small, short-term price fluctuations, closing all positions before the market closes to minimise overnight risk. This strategy is also known as intraday trading.
Swing trading
Swing trading takes a slightly longer approach than day trading, with traders holding positions for a few days to a couple of weeks.
Swing traders aim to profit from short- to medium-term price trends and momentum. They analyse daily market movements as well as broader market trends that could influence share values.
Position trading
Position trading is the most long-term of all trading styles. Position traders hold positions on stocks for months, aiming to capture large trends. Position traders focus on macroeconomic events rather than short-term market volatility.
Before buying or selling, position traders conduct in-depth market research and keep positions open for a few weeks to make the most of major share price movements.
Active trading
Active trading refers to any shorter-term trading strategy, where you buy and sell shares more frequently, aiming to capitalise on shorter-term price movements.
Fundamental Trading
Fundamental trading focuses on analysing external factors to select stocks. Traders look at company fundamentals, economic data, industry trends, and news events to decide which stocks to buy or sell.
This approach, known as fundamental analysis, focuses on the underlying factors affecting the market rather than just share price movements.
Technical trading
Technical trading relies on chart patterns, technical indicators, and price patterns to guide trading decisions. By studying historical price movements and patterns, technical traders aim to predict future price action before entering a position.
What drives stock prices?
Stock prices fluctuate for several key reasons:
- Economic announcements: Quarterly and annual earnings reports often impact stock prices. Traders use fundamental analysis data like revenue, profit, income, and earnings per share all of which can influence a company’s stock price.
- Economic indicators: Data releases such as GDP, inflation, and retail sales can influence stock prices. Strong data can boost prices, while weaker data may lead to declines.
- Market sentiment: Investor demand for a specific stock can push prices up or down, depending on the overall market sentiment.
- Interest rates: Changes in interest rates can also affect stock prices. When interest rates drop, stocks often become more attractive as investors seek higher returns compared to traditional savings accounts.
Selecting popular stocks as a beginner
Choosing the right stocks as a beginner can be challenging. While it’s helpful to look at a stock’s past performance, effective stock trading requires more comprehensive research and analysis.
For instance, fundamental analysis offers insights into a company’s financial health, helping you make more informed decisions. Avoid choosing stocks based solely on brand loyalty or favourite products.
Instead, look at factors like the company’s balance sheet, income statement, competitive position, and management team.
Focus on the potential for future growth, rather than relying only on historical performance.
As a beginner, you may want to consider starting with an index fund instead of individual stocks.
For example, if you invest in a fund on the S&P 500, you will own stocks in multiple companies across different industries.
In this way, you’ll be diversifying your portfolio and helping spread risk across multiple assets instead of putting all your eggs in one basket.
If you’re just starting out with a limited budget, remember that buying and selling stocks can be costly, especially as you’ll be competing with automated trading tools and experienced investors.
Be sure to set realistic goals for return on investment, evaluate how much you have available to invest, and consider the time you’re willing to commit.
CFD stock trading
CFD stock trading has become increasingly popular among traders globally. CFDs or Contracts for Difference allow traders to speculate on price movements of an asset, like stocks, without owning the actual asset.
Traders can either take a long position (buy) if they expect prices to rise or a short position (sell) if they expect a decline.
In this way, traders can actively participate in the market without physically owning the stock.
CFD trading is also highly leveraged, allowing traders to control larger positions than their account balance would normally permit. For beginners, this offers broader market exposure and more trading opportunities. However, it’s important to remember that leverage increases both potential gains and losses.
Choosing a reliable CFD broker
Selecting a reliable broker for your CFD stock trading journey is vital. T4Trade, a global leader in online trading, provides both beginners and experienced traders with access to international financial markets.
With T4Trade, you can trade CFDs on shares of the world’s largest and most well-known companies, such as Apple, Google, Microsoft, Facebook, and many others.
The broker’s MT4 platform offers fast trade execution, competitive spreads, flexible leverage to open larger positions with a small deposit, and more.
Whether markets are rising or falling, you can make the most of rising and falling markets by going long or short.
T4Trade also provides a range of trading accounts designed to suit the needs of different types of traders.
Additionally, their expert multilingual customer support team is available 24/5 through live chat and email.
Traders can also access a wealth of educational resources via T4Trade Education, which offers podcasts, webinars, videos-on-demand, Live TV and an Economic Calendar to track important economic releases and announcements.
Disclaimer: This material is for general informational and educational purposes only and should not be considered investment advice or an investment recommendation. T4Trade is not responsible for any data provided by third parties referenced or hyperlinked in this communication.
