What is stock trading?

What are stocks?

Stocks or shares or equities represent small units of ownership of publicly traded companies. They are sold to raise money to cover start-up costs or to expand the company. When you buy a share of a company, you are essentially buying into the company and own a part of the business and are entitled to a small fraction of the assets and earnings of that company.

Some of these companies, mostly long-established firms repay their stockholders by paying them yearly dividends, provided that it is making a profit. The rest are considered as growth stocks; the companies, usually new ones, reinvest all the profits it made during the year to fuel growth and/or expansion.

Stock investing v/s Stock trading

Trading in the Forex market

Stocks of publicly traded companies are bought and sold on physical stock markets (stock exchange) such as the New York Stock Exchange, the London Stock Exchange, etc and on the NASDAQ stock exchange, which is an electronic system.

Both investors and traders have the same aim, that is, to make a profit buying and selling stocks, however, they take different routes to reach their goal. Investors usually buy stocks and hold on them for years or even decades. They are not concerned by the short term fluctuations of the stock prices and will usually ride out downtrends in the hope that the values of the stocks will rise once more. During the time they own the stocks, they make profits by earning dividends and interests. Investors usually deal directly with investment banks or stockbrokers to purchase or sell the stocks.

On the other hand, traders invest in stocks for a very short time; months at the most and minutes, or even seconds for some. They take advantage of the price fluctuations caused by different factors to flip the stocks and make a profit in the process. This type of investment has been made possible due to the emergence of online trading.

How to make profits by trading stocks

What is forex trading?

As we have outlined in the above section, the value of stocks is highly influenced by many factors, internal or external. For example, a major merger can cause the price of a company to increase while an internal scandal has the potential to decrease the value of the stocks. Many external factors can also affect the price of a stock. A recent example is the trade war between the USA and China and the resulting ban imposed on Huawei. On the short term, it greatly affected the value of the Huawei stocks. Traders take advantage of these to make a profit.

However, in order to be successful in trading, traders must be constantly up to date with the news that may affect the value of the stocks that they are planning to trade.

To help traders, online brokers like Markets.Online provides them with live information they may need to make informed decisions.