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How to Trade Stocks

Introduction

Stocks are financial instruments that are primarily traded on the stock exchange. These exchanges are basically a central location where buyers and sellers can come together to trade. 

Both the buyers and the sellers arrive at a mutual value for a particular stock and then engage in transactions. These stock exchanges are typically regulated by national authorities who monitor all their activities and create rules related to their operation.

Another way to trade stocks is via virtual exchange. This is the secondary mode of trading stocks. Under this mode, electronic trades are executed via centralized platforms. Traders need to register on these platforms and place their orders to buy or sell. 

These virtual exchanges are much more convenient because they enable you to trade from anywhere. This article looks at various aspects of the stock market, including its history, ways to trade stocks online, futures/options, as well as Contract for Difference (CFD) trading.

History of the Stock Market

Stock markets have been in existence for centuries. For instance, the New York Stock Exchange (NYSE) was founded in the year 1792. Since then, companies have been listing their shares on the exchange. 

The primary mode in which shares can be listed as an exchange is known as an Initial Public Offering (IPO). Almost all leading companies in the world choose to follow the IPO route in order to sell their stock to the public and raise funds. Some of the leading companies in the world are listed on the NYSE, including Google and Microsoft. The shares of such listed firms are traded on the floors of the NYSE.

There is another way to trade the shares of these listed firms, via the secondary market. In this market, individuals who already own the shares of a particular company tend to sell them to other traders. Shares can also be bought via the secondary market. 

There are numerous players within secondary markets, including intermediaries, traders, advisors, as well as corporate investors. Stock trading has come a long way over the past few decades, and it has evolved into a large-scale industry in itself.

How to Trade Stocks Online

Trading stocks online is a fairly simple process. This process has been simplified by means of electronic communication networks (ECNs). Such ECNs typically charge you a small fee in order to execute trades on their platform. They act as a bridge between individual traders and the major brokerage houses. In countries like the US and the UK, ECNs are fully regulated by the national authorities.

There are numerous benefits of trading stocks using ECNs. Firstly, the speed with which they are able to execute your trades is extremely good. You do not have to wait in order to buy or sell the shares. The time taken to execute such trades can be as low as a few milliseconds. Secondly, ECNs enable you to automate the trading process. They allow you to use features such as auto-pay so that you can purchase shares on a regular basis.

Thirdly, you can engage in passive order matching. This feature implies that you match the trades that are being executed by top asset managers. Using this technique, you can record the same returns as the top investors are making. Finally, another major benefit of using ECNs to trade online is that you can do so from the comfort of your home. You simply need to set up an account with them, and you are good to start trading.  

The Concept of Futures Trading

Apart from stocks, there are several other instruments that you can trade. One such instrument is trading contracts. Although these trading contracts were originally created for farmers and dealers, they have evolved to a great extent in recent decades. As part of a futures trading contract, you are expected to buy or sell a predetermined amount of stock on a particular date in the future.

Futures trading has become the norm around the world. The length of future trading contracts can vary from months to years. These contracts are typically traded on a futures exchange. The buyer of such a contract is under an obligation to buy the underlying asset at the expiry of the contract. Similarly, the seller is also under an obligation to deliver the underlying asset on the agreed date. Another form of trading instruments is options. Options give you a choice to purchase or sell an asset on a particular date in the future, although you need to pay a fee to acquire them.

What is CFD Trading?

Another form of financial derivative is CFD trading. This instrument was originally created in England, but it has become popular around the world. CFDs are tradable instruments that typically track the value of an underlying asset. All profits or losses on CFD contracts can be realized whenever the movement of the asset is in sync with the position that has been taken by the trader. Further, under CFD trading, you do not get physical access to the underlying asset at any stage.

There are various benefits of CFD trading. First, you can enjoy a great degree of leverage under these contracts. This implies that you do not have to commit large amounts of money in order to generate substantial returns. 

There are numerous brokers in the market which deliver leverage as high as 500 to 1. This means that you can purchase $1,000 worth of shares by only investing $20. Second, CFD trading can be done by anyone. You just need to register with a broker and open an account.

Finally, CFD trading is useful because it allows you to trade at low margins. There are several CFD brokers who allow you to take positions without having to pay huge margins. This can help you in maximizing your returns. 

Thus, it is evident that CFD trading is a great alternative to traditional stock trading. You can really maximize your wealth if you choose the right broker and make the right investment decisions. 

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