Stock trading is like thousands of transactions that take place everyday in other venues just like the stock market with one common denominator, a buyer and a seller. Stock trading is not unlike the retail world, where supply and demand reflect the price of goods and services just like supply and demand determines the price of individual equities. Although there is a similarity with the example of supply and demand, a stock may be bought or sold at different prices. Retail goods are usually sold for a static price, stocks however can be purchased at different prices with these prices reflected in the offer or ask price and the bid price.
For example, every stock has a current bid and offer. The bid price is reflected on the left side of the box and is usually what sellers can sell the stock for at the current market price. A seller can initiate a trade to sell their stock at the current bid price with the sale almost always taking place immediately once the trade is initiated. A buyer can also use the bid side to buy stock at a lower price than what is currently being displayed on the offer or right side of the box. If a trader does not want to pay the offer price that buyers are willing to sell their stock for, he can place a stock trade and bid for the stock on the left side of the stock at a lower price than what is being offered on the ask or offer side. Usually if the stock is liquid, a seller will eventually sell to the bidder at the price the trader has placed on the bid side to buy the stock.
The same works for the right side of the box, the offer or ask price. The offer side is where buyers can purchase the stock at the current market price and are paying the top price for the stock at this given time during the trading day. However, if a seller wishes to sell his stock at a higher price than what is currently showing on the bid side of the stock, the trader can initiate an order and offer his stock on the ask or offer side and wait for buyers to pay the current market or best offered price for the equity. With patience, traders can buy and sell stocks for lower than the current market price making more money than he would otherwise receive at the prevailing prices.
It should be noted that stock prices do fluctuate throughout the trading day as the ebb and flow of supply and demand dictate in the financial markets. Liquidity is very important in order to purchase and sell stocks below the prevailing market price. Stocks that have very little liquidity do not lend themselves to this practice since it is difficult for buyers and sellers to name their own price in illiquid stocks. The practice of buying and selling below the current market price is usually the realm of the scalper who takes small profits in many transactions throughout the trading day and the day trader who may buy and sell just a few times during the day. However, this trading strategy is not only for these two types of traders, the swing trader and long term investor can also profit from buying and selling below the current bid and offer price if patience is exercised.
To buy and invest in stocks, an individual requires a stockbroker licensed to trade in securities and buy and sell stocks and shares on the individual's behalf. Before selecting a broker for Buying Stocks, an individual must decide on the type of services required. According to services provided, there are 4 categories of brokers available. One Category of brokers, are just order takers and these are cheaper, while others provide more service with in depth analysis of finances, recommendations and advice. Another category is online and Internet based discount brokers, and money managers. Generally, a new investor is influenced by a Stock Market Trend, and daily news about a Bull market, and is keen to invest in the market to reap profits. But such investors also leave the market quickly during a Bear run and crashing market. An individual should first analyze why they want to invest in the Stock Market. Is it for quick short-term gains or long-term investment plan for the future?
Whatever the reasons for investments and Buying Stock, an individual requires a broker as an intermediary. Besides looking for a suitable broker, an individual should also read up on material related to investing in stocks and understand market dynamics and a Stock Market Trend. Online brokers just take orders to buy and sell stocks and are the cheapest as there is no office and they do not provide certified advisors or financial planners to help an individual. This means that the individual should know which stocks to buy or sell, and understand the market thoroughly. The individual interacts with the online broker over a phone or through the Internet. The cost of transactions is charged for individual transactions, thus allowing an individual to open a trading account with little money.
Opening an account for Buying Stocks or selling, with this category of brokers, allows an individual to buy or sell stocks instantly with a few mouse clicks. These brokers do not provide any investment advice or tips, and an individual has to decide what to buy and sell, and when. This requires a thorough and in-depth knowledge of stocks, shares, companies, stock market news, and the current Stock Market Trend, because the only support an individual gets is for the Internet based trading system. If an individual feels that they are knowledgeable and can take responsibility of deciding investments by themselves, or if the individual wants to learn about investing without a large amount of money, then this is a good enough route to take.
Discount brokers who provide some assistance are just like online brokers, except that they charge a small fee for some extra assistance in Buying Stocks or selling them. The assistance may not be much and as is usually just a little more resources and information to assist an individual with investing. Full service brokers are stockbrokers who spend time and efforts to sit with an individual, and understand them on a personal level and also financially. This category of brokers work with an individual to develop financial and investment plans, which are best suited for an individuals long-term objectives and investment goals. Money managers, although they are financial advisors, act more as managers than advisors, and take full control and discretion over a clients account. These skilled professionals usually manage large portfolios and large amounts of money and charge high management fees, which are based on the assets that they manage.
Both Phillip Hatley & Clint Jhonson are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Phillip Hatley has sinced written about articles on various topics from Penny Stocks, Credit Cards and Forex Online. Phillip Hatley is a full time trader with eight years of experience in futures, stocks and options trading. For more information about trading and for investing ideas, please visit his. Phillip Hatley's top article generates over 3600 views. to your Favourites.
Clint Jhonson has sinced written about articles on various topics from Modelling, Home Buyers Guide and Gardening. For more information on or , pl. Clint Jhonson's top article generates over 1000000 views. to your Favourites.