Stock Trading Basics - For the Beginner

"I make money by stock trading", my friend told me. That was a few years ago. I had no idea what stock trading was. The only thing I knew was that my parents owned a few shares of Barclays Bank that they had bought when they were younger. All I knew was that you bought stocks when younger and sold them when you got older.

Stocks or shares are what these companies use to raise funds for their operations. Every company needs funds or capital for their normal operations. The capital raised would be used to acquire property, pay off loans, buy new companies or fund any other operations of the company.

In order to raise these funds for these operations, a company has an option to either borrow the funds or raise them itself. Borrowing funds can be expensive and most companies prefer to raise the funds. To raise the funds, companies offer ownership to investors in the form of stocks or shares.

Stocks in simple terms represent part ownership in a company by an investor. The investor exchanges his funds for shares to earn the right to participate in important company decisions as a shareholder. The shareholder gets a vote for each share owned. He also participates in any profits that the company earns in the form of dividends.

The value of the shares will go up or down depending on the performance of the company. If the company has good financial performance, the value of the shares may go up and the opposite happens if the company does poorly. As such, the shareholder can profit by selling his shares at a higher price than he had bought them.

Most investors like my parents buy the shares once and never think about them for years. All they do is gain profits from the dividend checks given each year that the company makes a profit. However, there is the type of investor who buys shares for the sole purpose of selling them after the shares have raised in price.

These investors will need to buy or sell these shares. The stock market is where they go to buy and sell shares. In the UK, this market is known as the London Stock Exchange. Stock trading is the practise of buying and selling shares in companies for making a profit.

It might seem easy but stock trading can be a risky business especially for those who do not know much about it. Many investors have lost fortunes trying to make money in stock trading. Some have gambled their livelihood trying to become the best stock traders in the UK.

With proper planning and education, anyone can avoid the traps inherent in stock trading. An investor with proper stock trading education can make a very decent living in a short time. You do not have to risk all that you own in order to do well in stock trading. With simple discipline, anyone can be transformed into an excellent stock trader.