Legend states that the well-known Joseph Kennedy sold the last remaining stock he had the day preceding ‘Black Thursday’, which was the initiation of the 1929 Wall Street Crash. Numerous investors suffered insufferable losses in the crash, which became one of the cornerstones of the Great Depression of the 1920s.
What led Kennedy to offload his remaining stock? He got the idea from a lonely shoeshine boy. In 20s America, the stock market was a sphere for people with a lot of capital. Kennedy knew that if a lowly shoeshine boy could purchase his own stock, then something must be awfully wrong with the current market.
Recently is has been seen that anyone can own stock. Online trading has opened the door for anyone who has a computer or a bank account the ability to invest in the open market. Moreover, you do not have to be an expert (broker such as cmc markets) or have access to personal fortune to do so. Most experts agree that Joe Bloggs trading stock will not have a detrimental effect on the economy.
The market is now more open than it ever was; however, it does not mean you should go into online trading with your eyes closed. Online trading is a huge platform and it is important to understand the mechanics of it so you can successfully buy and sell shares and stocks and use a broker efficiently to maximize profit margins.
Stock and Market Explanation
Before understanding the sphere of online trading, we must understand the basics of the stock market. Basically, a share of stock is a tiny piece of a company or a corporation. Shareholders are the people who actually buy the stock; essentially, they are putting their faith in a company and investing in its future, as long as they own shares. The price of a particular share fluctuates with the economic market, the pure performance of the company and mentalities of the investors. The first time a company provides its stock for general sale is called and IPO (initial public offering), also more generally known as ‘going public’.
When a business makes a net profit, it can distribute equally its profitability with its stockholders by supplying a dividend. Furthermore, a business can also store its profit or simply re-invest it by making minor alterations to the existing business or by hiring new employees. Stocks that give out regular dividends are known as income stocks. Essentially, stocks and investments in companies that reinvest their profits are known as growth stocks.
Brokers purchase and distribute stocks through a process known as exchange. Thus, a broker is an individual employed to buy and sell stock through the aforementioned process. A broker can be seen on trading floor or can alternatively trade by phone or on the internet.
Interestingly, an exchange is like a warehouse whereby people come by and purchase and sell stocks. A person or electronic device must equal each by order to each sell order. Some exchanges work like antique auctions whereby there is an actual trading floor, where buyers and sellers attempt to match each other’s prices electronically. The major stock exchanges are:
- The New York Stock Exchange: trades stocks in on a trading floor
- The NASDAQ, which is an electronic stock exchange system
- The Tokyo Stock Exchange, which is the famous Stock Exchange in Japan
Before you actually go into trading stocks online, you must select a relevant online broker. Your online broker will be able to take hold of your trades and professionally store your money and stock in a secure online account. Importantly, the online trading platforms has already experienced many mergers and acquisitions, but there are thousands of firms to actually choose from. You must remember that all firms offer a different level of commitment and assistance, account types and other essential services. You should keep in mind certain details when searching for a broker:
- How much money you actually plan to invest
- How regularly you want to make trades
- The level of trading experience you have accrued and how will use it in the future.