Trading Stocks For Beginners: Pros and Cons
Understand the potential highs and pitfalls that come with trading stocks and the market’s pros and cons. Read on to learn more.
*Sage FX would like to state that traders should research extensively before following any information given hereby. Any assumptions made in this article are provided solely for entertainment purposes and not for traders to guide or alter their positions. Please read our Terms & Conditions and Risk Disclosure for more information.
- What Are Stocks?
- Where Are Stocks Exchanged?
- The Different Types of Stocks
- How To Trade Stocks Successfully
- Trading Stocks With Sage FX
What Are Stocks?
The frantic exchange floor; the screens of red and green numbers; the screaming, sweating traders. Thanks to Hollywood, this is the image we conjure in our minds when we imagine the stock market. In reality, the stock market is far more accessible than beginners may think and offers great trading exposure.
Basically, a stock is a small portion (equity) of a company. As a company flourishes, the value of stock increases and brings investors profit when they are ready to sell. Generally speaking, stocks are popular amongst traders for their liquidity, which means they’re easy to buy and sell as desired. They allow traders to become involved in the most exciting industry entities across technology, energy, medicine, entertainment, and much more.
Where Are Stocks Exchanged?
Stocks are listed on specific marketplace known as exchanges. Nearly every country in the world hosts a local exchange, but there are 16 major global exchanges that hold around $1 trillion of market capitalization. These include the London Stock Exchange, the NYSE, and the Tokyo Stock Exchange. Exchanges vary in their composition, ranging from auction markets, ECNS (Electronic Communications Networks), or OTC (over-the-counter) dealers. Moreover, each exchange has its own list of company stocks. For instance, the Nasdaq specializes in tech stocks, such as Tesla and Apple.
For the average trader, stocks are accessed through an online brokerage. This means your choice in platform will dictate which stocks you can trade and what trading conditions, fees, and support you can expect.
The Different Types of Stocks
There is a range of options available for trading stocks through bonds, mutual funds, or preferred stocks. But to keep things simple, we’ve summarized the general types that beginners should recognize:
Large or Medium Stocks, including Blue Chip Stocks – These are defined by their high market capitalization and comprise the big names of the industry such as Coca-Cola, IBM, and Apple. In most cases, their size and history make them a relatively safe or stable option for traders.
Penny Stocks – Not usually recommended for beginners, these are cheaper stocks of smaller companies. They are traded for speculation rather than long-term investment due to their volatility and high level of risk.
Value and Growth Stocks – These are stocks that are considered undervalued or expected to undergo significant growth.
Unfortunately, stocks, like any other asset, carry a degree of risk and never guarantee you positive returns. In particular, high volatility leaves traders open to devastating losses. If you don’t have the time to research your stocks and develop a solid risk-management plan, your trading journey is likely to be a bumpy one.
How To Trade Stocks Successfully
As with any other asset class, strategy, diversity, and analysis are key to conquering stocks. In terms of strategy, stocks can be tapped for long term investment or short term profit through day trading, scalping, and swing trading. Of course, you will need to choose your stocks accordingly and factor their volatility into your strategy.
Secondly, you should outline a diverse portfolio that spreads your risk and your market exposure. It is worth trading across different stocks so as to capitalize on different business cycles and international competition. An easy way to enhance your exposure is to trade indices, which are groups of selected stocks. They allow you to leverage the combined force of multiple stocks without the need to research individual companies.
Ultimately, analysis is the glue that binds your assets and strategy together. Fundamental analysis and sentiment analysis are essential for your research in order to make an informed assessment of company prospects. In particular, you should look at the company’s debt, earnings, sales, and equity, as well as its public image before you commit money against their stocks.
Trading Stocks With Sage FX
If you’re keen to explore stocks, you need look no further! Sage FX currently lists over 30 of the most exciting global stocks and 9 of the best indices for trading through CFDs. This means traders can choose long or short positions on a stock because they do not take ownership of the asset. It also allows you to leverage your positions by as much as 200:1 to enhance your exposure!