How To Be A Top Stock Trader

By Author: Mark Crisp
Total Articles: 3764
Comment this article

It's easy to buy stocks. But buying now and turning those same stocks over for a profit is not quite so simple. Knowing when to buy and sell takes proficiency, and that takes time; you won't learn it from just one article. But if you want to learn the ABCs of stocks, then roll up your sleeves and keep reading!

Most important - what is "stock?" Very simply, stock is the ownership of a corporation that is represented by shares. You might hear stock and "equity" used interchangeably. When you buy stock or equity in a corporation, it means you become one of many owners of the company. This ownership means you have a stake in the company's assets and earnings. It doesn't matter if your share seems tiny or insignificant.

Buying and selling stocks is done through an exchange. An exchange is an organized market that's been designed exclusively to buy and sell stocks, bonds, options and futures. Before you can buy stock, you must be a member, or have what is called a "seat" in the exchange. For most of us, though, this just isn't realistic; the price for a seat on an exchange can run into the millions. Another method for ...
... buying and selling stocks is to use a company or other entity with a seat on the exchange.

When you own stock, you are entitled to certain rights and privileges. If you decide you no longer want your shares, you can sell or transfer them to another person. But you can also increase your stake by buying more. With some stocks, you can actually have a voice and vote on corporation issues. But how much you vote counts may depend on the percentage of shares you own.

Shareholders also have a right to be informed; whenever corporation changes are made, you will receive notice by mail. If the company makes a profit and has money to spend, you may be entitled to dividends. But the board of directors has the right to decide whether to pay shareholders in cash or stock dividends.

There are two kinds of stock for sale - Common Stock and Preferred Stock.

New investors will quickly discover that Common Stock is more popular than Preferred Stock. One aspect of being an owner of common stock is that you share in both the risk and reward of the company. If the company's value goes up, so will your stock. If the company pays dividends, you'll receive them in one of two forms: either cash or stock dividends. Common stock usually means you'll also get voting rights. You will be allowed to cast your vote on management decisions and corporate policies through a proxy.

Preferred stocks also give you a stake in a corporation but add a few more perks. Preferred stockholders are first to get a dividend payout. Common shareholders have to stand in line. If the corporation folds, preferred stockholders are entitled to any remaining assets - but only after all the creditors are paid. Essentially, this places the preferred stockholders ahead of common shareholders when it comes to collecting any remaining assets. Another difference between the two is that preferred stock does not go up in price as would common stock. Another important point - preferred stock does not offer voting rights.

Feel ready to start buying and selling stock? The next step is to open a stock trading account. Although there are many types of brokers available on-line, you'll most likely want to work with one known as a "discount broker." Offering even cheaper per trade commissions are "deep discount brokers." You'll find many of them online, too. And don't forget -- It's always a good idea to compare several brokers before you pick one. Good luck!