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The Basics Of Stock Market Trading

Aug 17, 2007
Stocks are the basic building block of the stock market. A stock represents partial ownership of a company - the smallest share possible. Company issues stocks to raise capital and investors who buy stock are actually buying a portion of the company. Ownership, even a small share, gives investors rights to a say in how the company is run and a share in the profits (if any). While stocks give owners certain rights, they do not carry obligation in case the company defaults or faces a lawsuit. Worse comes to worse, the stock becomes worth absolutely nothing but that's where the liability ends - investors will never actually owe money if the company goes bankrupt.

1. Companies Give Stocks To Raise Money

In most cases, the company needs money to expand or to acquire new properties. Each stock issue is limited to a certain number of shares, and when they are issued they are given a par value. The value of a company stock is often directly related to it's market share.

2. Buy Low, Sell High

If you are going to buy stocks, make sure you invest in a company that you believe will be growing soon. Investors who acquire stock in a new company are taking more of a risk than buying shares of well-established companies but the potential gain is much greater. For example, those who invested in Microsoft and held onto them are quite wealthy today.

3. How Is A Trade Done?

A trade actually happens at stock exchanges such as the NYSE or NASDAQ. Only reputable, and listed, companies can have shares bought, sold, or traded. As an investor, you will need a broker to make your transactions for you. You can tell your broker to sell once the stock reaches a certain price or simply to sell what the market will bear. Your broker will get a commission for the sale.

4. How To Minimize Your Losses

Smart investors always say that most of the game is in minimizing your losses. A more recent stock trading strategy to help you minimize the amount you can lose on any given trade is called "trailing stops". With a trailing stop your broker can trigger the sale of your shares if the stock deviates down a certain percentage from it's most recent high.

5. Why Stocks Over Other Investments?

- Stocks grow over time
- Stocks give you rights to vote as a shareholder
- Dividends give you money once or twice a year
- You will never owe money if the company goes bankrupt
- Can earn more money than any other savings investment
About the Author
For more great stock market related articles and resources check out http://stockstop.info
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