Understanding the Stock Market

If you are unfamiliar with the stock market, then this trader’s guide will assist you in understanding this market and how you can easily trade stocks with Friedberg Direct online. The stock market is a giant international market where stocks, or shares of ownership of a company, are traded.

The vast majority of this trading is now done online; however, in the past, it was done over the phone, or in person, directly with one’s broker. All around the world, people trade stocks, hoping to profit from price changes over time. Stock prices change continuously during trading hours, offering traders many lucrative trading opportunities.

However, before we get started with the specifics of the stock market, it is important to point out that when you trade stocks in the conventional sense, you are buying into a company, usually in very small amounts. The more stock you own, the greater your share in the company. Publicly traded stocks number in the thousands, and many stocks are listed or delisted each and every day.

The value of a stock is dependent on a wide variety of factors, including the fundamentals of the company, socio-economic issues, geopolitical issues, inflation, unemployment, taxation, and a host of others. At any given time, all of these factors are working together – often in opposite directions – to influence the price of the company’s stock.

But perhaps the biggest drivers of stock prices are speculation and perception. The more people that believe a stock is likely to move up or down, the greater the likelihood that they will move the stock price in a particular direction.


Stock trading is a lot easier when you trade stock CFDs at Friedberg Direct

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What Determines Stock Value?

Stock prices are only calculated when a company decides to go public and make its initial public offering. The company will primarily pay an investment bank (the IPO’s underwriter) that makes use of complex valuation techniques to determine how many shares will be offered and at what exact price.

A company’s total market value is its Market Capitalization, which represents its Stock Price multiplied by the number of outstanding shares it initially sold – the stock price being published on the stock markets. Thus, if a company’s value is estimated at $100 million it may issue 10 million shares at $10 per share.

How to Get into the Stock Market

The simplest way to get into the stock market is to create a trading account with an online brokerage, such as Friedberg Direct.

To create an account, simply fill in the short registration form on the website and create a password. Once your account is set up, you will be required to deposit a minimum amount of trading capital.

Minimum deposit amounts can vary significantly from brokerage to brokerage and can range from $100 to $1,000.

After you have deposited the minimum amount and once your account is approved, you will be able to start buying and selling stock CFDs or other assets that Friedberg Direct offers, such as forex, index and commodity CFDs.

Typically, brokerages will take a commission on every trade, or they will charge by spread. The spread is the difference between the buy and sell price of an asset.

If the brokerage charges by spread, it will take a percentage of the spread, such as 1%, instead of charging a flat commission on every trade.

At the end of the year, if you generate a profit from your trades, you may be required to pay a capital gains tax, depending on the country you live in.

Why CFD Stocks Trading is so much easier

When you trade CFD stocks like Google, Coca Cola, Apple or Barclays, you are not buying shares in a company; you are agreeing to a contract with the broker to settle the difference in value between the entry/exit prices of that particular stock – a Contract for Difference.  Prices are always moving up and down, but traders can always take advantage of these price fluctuations, even in a bearish market. To learn more, visit our short selling page.

how to trade stocks CFDs

An additioal advantage of trading CFDs is that these are usually leveraged trades – up to , which means that for a small investment you can trade substantially larger stock volumes. It is important to understand, though, that CFD stock trading has an upside and a downside, and sensible trading practices are encouraged at all times.

The upside is that with higher amounts of leverage, it is significantly easier to generate higher returns if you make a profitable trade. The downside is that it is also significantly easier to lose money if you make a bad trade. So, before you use large amounts of leverage for CFD trading, you need to make sure that you have done your homework on your trades and that you are financially responsible.

Advantages of Leveraged Stock Trading

  • Leveraged trading enhances your initial capital
  • Increase your profit potential but beware of associated risks
  • Increases your exposure to the markets on particular positions
  • Allows you to fully capitalise on market investments
  • Leverage also allows traders to offset capital losses from other trading positions
  • Using leverage effectively can be pivotal as part of a balanced, well managed trade portfolio

The Trading Platform Is Paramount

One of the most important aspects of trading stocks is the trading platform that you use. We feature several of the most powerful, innovative and robust trading platforms on the market. Among these are 2 Metatrader variants – MT4 and MT5, and a proprietary Options trading platform.

You will be able to make use of multiple trading graphs, management functions and other features to enhance your overall trading experience. Plus, you will be able to see your stock portfolio alongside your indices, forex, and commodities portfolio.

We regularly update our traders with the latest news, educational resources and market commentary to keep you well informed about the hottest trends, movements and news from the world of stock trading.

Find a Successful Stock Trading Formula before you begin to trade. Know the risks and potential positive outcomes prior to entering a Stock trading position. The use of limit and stop orders as well as leverage have a substantial role to play.

Now that you know how to trade stocks online at Friedberg Direct, register today to open an account and get started.

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How to Trade Stocks FAQs

  • Do I need to diversify when trading stocks?

    The notion of diversification or spreading your money across a number of market sectors or asset classes, is a concept that applies to investing for the long-term. When you are trading stocks, as opposed to investing in them, you are looking to make a profit from the short-term movement of the stock. In this case diversification won’t, necessarily, benefit you, and in some cases, it could even harm your results. If you are looking to profit from the movement in stocks often times it is stocks within the same sector that are making the best moves, which means you may want to concentrate your trading rather than diversify.

     
  • How can I find the best opportunities when trading stocks?

    There are always good opportunities in the markets and you don’t have to find the best to make a profit. The very best way to locate stock trading opportunities is to become intimately familiar with the market. The easiest way to do this is to begin with a single sector, like technology or the financial stocks. When you are constantly monitoring the behaviour of a stock or a set of stocks you will begin to notice patterns in the prices that you can take advantage of. Start by creating a small list of 10-20 stocks that you follow on a regular basis and work your way up from there.

     
  • How will I know when to sell my stocks?

    You should have a plan for every trade you make. That means knowing why you want to buy or short the stock, where is a good area to place your buy/sell order, and knowing, as much as possible, what will help determine how much the stock might move before you sell. You should already know when to sell before you buy the stock. That means when to sell for a profit, or when to cut your losses. That takes all the emotion out of the trade because your trading decisions won’t be dictated by fear or greed.

     

These FAQs, comments/analysis do not take into consideration your individual personal circumstances and trading objectives. Therefore, they should not be considered as a personal recommendation or investment advice. They are intended for educational purposes only. Past performance is not indicative of future results. There is no guarantee that the contents or instructions will result in profits or not result in losses.