What is the stock market – a complete overview of the concept and main stages of trading in the stock market
10 min readWhat are blue chips in the stock market? Where to get training in trading and how to open a demo account when trading?
1. What is the stock market and how does it work?
The financial market can be divided into three segments: commodity market, stock and currency (Forex trading).
In the commodity and foreign exchange markets are sold, respectively, products/raw materials and currency, but on the stock – securities. They may be stocks, bonds, checks, bills, futures and forward contracts, as well as options.
Below we describe in detail the main categories of securities, listed on the stock exchange, in the meantime, get acquainted with bidders.
All people, related to the stock market, can be divided into three groups:
- Issuers – the company, issuing securities (eg, Gazprom – issuer of shares).
- Investors – people, buying securities for income from them.
- Traders – those, who wants to make money by changing the price of a security, and not on direct income from her.
It is very important to know the definition of a concept «blue chips». At the casino, a blue chip – most expensive, on the stock exchange with this expression they called the securities of the largest and most reliable companies.
Stocks «blue chips» guaranteed dividends. Besides, they are very liquid, therefore allow you to make good money on speculation. By price change «blue chips» you can judge the general condition of the market.
2. What you can buy in the stock market — overview of the top 4 trading tools
Let’s briefly outline the four main tools, which can be successfully traded on the stock exchange.
Tool 1. Stocks
Stock – security paper, buying which, we contribute (equal to the value of the stock) in the total capital of the company and get the right to part of its income. for instance, when buying half of all shares, we will take 50% company income.
Part of the firm’s earnings, which the shareholder takes, called a dividend. Usually, dividends are paid annually.
Sometimes the Board of Directors may decide not to share the profit with the shareholders: she will be reinvested to receive even more income in the future.
Tool 2. Bonds
Bond – commitment, on which one side (issuer) undertakes to issue a certain amount of money to the bearer of the bond at the appointed time.
The issuer of these securities may be individual firms or the state. In the first case, the issued securities will be called corporate, in the second – state. The first are taxed, second – no.
Bonds are not subject to such sharp fluctuations in price, like stocks, therefore it is advisable to start trading just with them.
Tool 3. Options
The principle of the option is as follows: we make an assumption, how will the price of a financial instrument change (it can be anything) after a certain time, eg, in one day.
Then we buy an option, paying a certain amount for it, let’s say, ten dollars. The value paid is called the option premium. When the day goes by (or another term), results are analyzed.
If the assumption is correct – we get back the invested amount and more profit. If not – we simply remain without the money paid for the option previously.
Tool 4. Futures
Futures – it is an obligation of one party to provide another specific product in a specified quantity at a negotiated price in the future.
Example
Let’s say, Rosneft wants to buy ten barrels of oil from Gazprom in a year. For this, futures are executed: in a year Gazprom will supply Rosneft ten barrels at that price, which was recorded at the time of signing by the parties to the contract.
As the price of oil changes, futures can be freely traded on the exchange.
On a note
If Forex can be traded as market growth, and lower, then the stock exchange will only be able to earn when the financial instrument has risen in price.
so, The main objects of bidding we have listed, move on to three ways to earn money on the stock exchange.
3. How to make money in the stock market — 3 proven methods
Stock Market Trading Strategies (there is a separate article about this on the site) lots of, but there are only three areas of earnings. Let’s analyze them.
Method 1. Sale of shares and bonds
This direction of earnings is suitable only for company owners, operating securities, or joint stock companies, issuing shares.
Certainly, the stock market was originally created just to receive capital through the sale of securities. If you created a joint stock company and issued shares, placing them on the exchange will allow you to quickly find investors.
In addition to making money, you can use the stock market as a means of minimizing risks. The conclusion of option or forward contracts makes it possible to not miss a profit in the future, «fix» good financial opportunities.
Method 2. Investing in securities
In the article «What is Forex? – forex market» We spoke, that you can earn money in the foreign exchange market only through speculation, trading on changes in exchange rates.
The securities market provides an opportunity to turn trading instruments into sources of constant profit and ensure a quiet life with a stable income.
If, eg, we do not buy stocks for speculation, and for dividends, then collecting a large portfolio of securities from different companies will constantly give us good money.
Many investors recommend combining investment with trading. In particular, can I buy any shares, which are projected to grow, and when the price rises – sell most of the securities and return the money invested.
We use the rest of the stock only as a source of passive income. Fluctuations in their course worry us little, since we received the invested funds back.
Method 3. Securities speculation
Securities speculation – main and, probably, the most profitable way to make money in the stock market, daily attracting more and more willing to learn trading.
Unlike investors, speculators are not interested in dividends and long-term prospects of a security. Their key goal – buy cheaper and sell more expensive, taking profit.
About, how long can a trader keep trades open, we wrote in the article «Forex training from scratch». Most market players – short-term or medium-term, however, and without supporters of lengthy bidding is also not complete.
Stock market analytics methods are similar to those, what we described in «Forex for beginners». The only difference is, that fundamental factors, affecting the dynamics of the state currency, usually do not affect stock prices.
4. Stock market trading — 5 milestones
Below we list the sequence of steps, which you need to pass for successful stock market trading.
Stage 1. Choosing a broker
When choosing a broker – reseller – we must rely on a number of important points. The most important thing – transparency and ease of withdrawing money, terms of trade, access to training and analytics.
Desirable, so that training takes place in webinar format. This makes it possible to ask the teacher questions and significantly improves the quality of knowledge.
The more analytics the broker provides – all the better. If a company analyzes the market with different approaches (and graphic, and wave analysis, for example) – it’s just great.
Stage 2. Installing a terminal on a trader’s computer
Since we do not plan to go to the exchange, we need to install a special program – terminal for trade. Installation is carried out after choosing a broker, since the terminal needs to be downloaded from the site of the selected company.
When the terminal is installed, it is very important to configure it correctly. Basically, the settings affect the display of charts and indicators, tool list and other items.
Stage 3. Opening a demo account
It is always necessary to start trading with training accounts, not real. Even if you have experience in Forex speculation, do not invest real money in the securities market on the first day.
Demo account helps beginners feel better «feel comfortable», try out strategies, test your psychological readiness for trading.
Stage 4. Opening a live account
For real money trading, you can only go after a constant profit on a demo account. If training was unprofitable – making real money will not change the situation.
Experienced traders are advised to first double the starting deposit for a demo, and then start real trading.
Successful speculation for two to three days does not guarantee future profitability: the market loves to surprise. If you doubled your initial capital, not trading at increased risk – this is evidence of your sufficient «maturity».
Stage 5. Buying and selling shares in accordance with the chosen strategy
When the training on the demo account is completed and real funds are deposited, it remains only to make a profit on the chosen strategy. Real money risk – not at all, that fear of loss «candy wrappers» training mode, so get ready for stress.
In a very short time you will understand, how important is discipline in a stock market game. In fact, it is in the discipline of the trader, and not the chic ability to understand the markets or «luck», the key to success is.
5. How NOT to trade in the stock market — 5 main mistakes a novice trader
Above, we determined the correct sequence of steps, which must be followed for successful trading. Now we highlight the five main mistakes of novice traders and analyze them.
Error 1. Long stay in a losing position
«Everything repeats in the market» — the newbie says and doesn’t close the deal, although the price goes against him. Actually – Yes, all repeats. The only question is, how much time will pass before the next «repeat».
Suppose, we opened a deal to increase, when the price was at level 1,4165. The market went against us, we did not close, counting on, what all «will happen again».
Replay occurred? Yes. In 12 years. Was it reasonable to wait?
Error 2. Early profit taking
Most likely, in the first days of trading, you will close deals when a minimum profit appears. «Suddenly the price will fall and I will lose money?!» — will not stop whispering to you your rational consciousness.
In time you will understand, that to close the deal ahead of schedule with a small profit – no better, how to fly out at Stop Loss at a loss. If we do not give profit to grow, then losing trades (which cannot be avoided) eat the whole deposit.
Your strategy should clearly signal, when to take profits. Do not act on the basis of «intuition», no matter how the market behaves.
Example
When we traded in an equidistant channel, we closed deals when the price reached the upper limit of the channel. Otherwise, even if the market was against us, did nothing, Stop Loss and Take Profit did not move.
If we closed at an apparent price turn, profit would be only a few cents. Trading discipline allowed to work out a strategy and get the planned income.
When the opportunity was provided, we closed part of the position, set breakeven and let the price go «free swimming», then taking good profits.
Error 3. Lack of trades register and trader’s diary
All transactions must be analyzed in the diary, to learn from your mistakes. For each transaction you must write, according to strategy, was it open and closed, profit or loss, what lesson can be learned.
Error 4. Market open trading
Alexander Elder, professional trader and expert in exchange trading, notes, that trade at the opening of the market, usually, addicted amateurs. In the early morning hours you can make some good money, but you can lose large amounts, since price dynamics have not yet formed.
Error 5. Mixing different trading styles
It is advisable to choose one direction of trade and develop, specialize in it. A superficial study of various methods will definitely not give a positive result.
6. How to successfully trade the stock market — professional help in learning to trade
To learn professional trading, it is very important to undergo quality training. Below we will look at several companies, offering good tutorials.
First of all, brokers need to be mentioned again «Finam» and «Zerich», who teach beginners how to trade directly in the stock market.
In addition to basic theoretical knowledge, practical skills are formed, thanks to which novice traders understand the essence of market functioning.
You can sign up for a seminar «Trading in the financial markets» from OJSC «Nefteprombank», which tells about earnings on the stock exchange of absolutely any type.
Teachers Explore the Most Popular Strategies, all classes are completely free.
«Financial Academy» developed its own program, consisting of two lectures and nine practical classes. Focus on practice gives tangible results: beginners trade for real money and profit after the first three days of training.
If you want to become a professional trader – pay attention to one of the options mentioned by us and take advantage of profitable opportunities (in addition, they are mostly free).
