Stock Trading Basics



Here are some stock trading basics that you need to know before you place a trade in the stock market if you do not know already.





Stock Market Quotes or Bid and Ask Price

A particular stock, also known as equity or share or any financial instruments you want to trade, have two prices attached to them at all times.

If you want to buy or otherwise known as long , you use the Ask price.

If you want to sell or otherwise known as short, you use the Bid price.

The price you see quoted in most newspapers and free stock quotes websites if they are not mentioned, are the middle price.These are the Bid +Ask divided by two.

Some stock brokers only quote the middle price when you want to trade with them,while others give you a Bid and Ask price.





Types Of Order

Most stock brokers nowadays can offer more than stock trading basics order. You can specify what price you want to enter & exit the trade.

This is a great way to enter the trade & you don't need to keep watching whether the price is hit. You enter the trade via stop & limit order.

For example, Vodafone is trading at 100p now. You want to buy when it's above 105p. You want to cut your losses when it drops below 95 and take your profit when it reaches 150p.

From your online stock trading account,you click on order,then

  • change the order type from market to stop and enter 105 or 105.00
  • click or adjust to buy
  • click on if done order
  • type in required sell stop loss price as 95 or 95.00
  • type in required sell limit price to take profit as 150 or 150.00
  • leave expiratory to Good Till Cancel or Day if you want it to be valid for today only.

A buy or sell limit order, is an order to buy or sell at a better price. Say Vodafone now is @ 100p. You want to buy when it drops to 80p. You place a buy limit at 80. If you want to sell at a better price than 100, you place a sell limit order above 100.

Once you are in profit, you can adjust your stop loss to lock in profit should it drop below your entry price. And of course, you can call your brokers to do these as well.





Stock Market News That Could Affect Stock Price

You need to know when these stock trading basics market news are due before entering a trade, especially if you want to day trade. I have seen stock prices & currencies often react violently on many occasions just before & after news are released. These news are:

  • Economic data, such as GDP, Home Sale etc.
  • Company reporting earnings.
  • Interest rate announcement & accompany reports
  • US Federal Reserve Ben Bernake speaks at Capital Hill

Prices tend to rise if the news are better than expected & drop if they are bad. You can click here for stock trading basics economic calendar.

Also you can get up to the minute stock market basics news from bloomberg or watch live bloomberg tv. Click on the required channel for the country you interested in.



Stock Market Trading Hours

Most stock market exchanges open @ 8 am & close @ 16:30. I know this is basic of the stock trading basics, please check with your stock broker.It certainly caught me by surprise.

Depending on what you trade,24 hour stock trading ,especially spread betting on futures stocks, indexes, currencies can be traded from Sunday 11pm GMT to Friday 9:15pm GMT.

Even though the market is officially closed, the trade is still opened. After hours stock trading can move against or for you at these time.

Also, for UK spread betting,if you don't close your trade @ around 10pm GMT,on some sites like cmc markets.com & cityindex.com,your trade will be automatically rolled over to the next day.




Trade with stock market trends

Trading against the stock market trends can cost you a fortune unless you know how to time the market. I will cover these under Elliot Waves, Delta & Market Matrix & some other simple strategies.

Generally, you need to trade in the direction of the market. You need to know where where the stock market is generally going. One simple way is know what stock market stages we are in the stock market.

You can also look at stock market charts . These charts basically plot the price of the financial instruments like Google share price over a period of time.

You can get these free stock market charts from most stock trading websites. I normally use advfn.com. It has both UK & US stock charts as well as some useful fundamental data. You need to register with them to access these free materials.



I ignored/did not know these stock trading basics in the past & it had cost me dearly. Knowing all these stock market basics can give you an edge to stock trading success.





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