What Is a Stock and What Does it Mean to Trade It?

What Is a Stock and What Does it Mean to Trade It?

Stocks are what are most often referred to when you hear about investing. A stock is a form of trading instrument which allows the investor the opportunity to buy a share of a company. You will own a small part of the company, the part that you own is referred to as Equity. As an investor you may choose to buy a stock and hold on to it for the long term, or trade it with a shorter term point of view. If you buy a large enough percentage of the outstanding stock of a company you may be able to have enough votes to have what is referred to as a control position. Most likely you are buying a few shares here and there.

The classic image of an investment in a company is a paper Stock Certificate, with electronic trading stock certificates are not issued to investors unless a special request is made. Anyone who has purchased stock can simply log in to their account to see the number of shares they own and the current price of the stock. To find out if you have made money in the stock, all you have to do is compare the price you paid and the current price the stock is trading for in the market. If the current price is more than what you paid then you have made money and if the current price is less than you paid then you have lost money.

There are many ways to pick the stocks you want to buy. Fundamental analysis, technical analysis, and the most popular for new investors “Gut Feel”. Fundamental analysis means that you look at the company’s financials to see if they are in good financial health or not. A technical analyst will look at a chart of the stock’s price and make an assumption of where they think price will move next. Most new investors will just pick a stock based on the fact that it is a popular name like Apple or because a friend had a “hot tip” that a stock was going to move up a lot.

Repetition is key. Trading is a skill you can learn it if you put in the time, but you need to place hundreds if not thousands of trades to become proficient. Think golf and hitting balls at the driving range, hit 10 golf balls a year and see what percentage of your drives hit the fairway. Most traders trade too many shares at one time, preventing them from placing the number of trades that it will require to learn the skill.

Many investors buy stocks and use a ‘buy and hold’ type strategy. In fact, once you buy a stock, you can technically hold on to it forever (as long as the company is still around that is…) But there are many more strategies between holding a stock for years or decades and holding a trade for 15 minutes. Find the time frame that works for your investing goals, there is no one size fits all approach and different stock investments in your portfolio can have different goals and time horizons.

Find a strategy that works for you and have a plan, stick to plan and record your results, make corrections and adapt along the way. There is no right way to trade and buy stock, invest some time in to learning the skill and give your self time to achieve the results you are looking for.