Trading in stocks means buying and selling stocks. Investing in stocks also involves buying and selling. The difference between the two is that while trading refers to frequent buying and selling, investing refers to buying a stock and holding it for a fairly long time before selling it.
It can be quite a mystery for people how the stock market provides for trading over one billions shares almost daily. It handles your transaction of one hundred shares quite as carefully and efficiently as ten thousand shares of another stock trader.
Stock market trading originally started in brick and mortar buildings called stock exchanges. We have often viewed the stock trading scenes in films and videos that show hundreds of traders in blue jackets rushing about, wildly gesticulating and shouting at each other. They are shown talking on phones while looking on the monitors and entering data into the terminals. Nothing, one might imagine, could be more chaotic.
The New York Stock Exchange -NYSE-is a fairly representative example of physical stock exchange. You want to buy one hundred shares of a certain stock. Your broker sends the message to his floor clerk on the stock exchange. The clerk alerts one of the firm's floor traders who find another floor trader willing to sell 100 shares of the stock you want to buy. The two traders agree on a price and the deal is settled. The message of the accomplished deal is sent back to your broker who in turn informs you. The whole procedure is over within a matter of few minutes.
With the advent of computers and Internet and the development of stock trading technology, we have online stock brokers. Stock trading takes place electronically. Millions of shares are bought and sold online every day. NASDAQ is an example of electronic stock exchange. Electronic stock trading and related transactions take place almost instantly.
Having understood the process of stock trading, it is time to devise your stock trading strategy as a beginner. Broadly speaking, we have two types of stocks, growth and value stocks. Depending upon the nature of stock you choose, you become a value or a growth investor.
It must be noted that there is actually no hard and fast rule about preferring one stock or strategy to the other. Growth and value strategies are not opposed to each other. They may even complement your portfolio. Each strategy has its own advantages. Experience, however, tells that the value investors usually stand to gain in the long run.
You can even start with both. It is, however, better to take up one and focus your attention on it.
Growth Investing
Growth investing involves investing in stocks of companies that show higher than average growth rates. Growth companies usually keep expanding and do not pay dividends. You hold your stake in the company till it continues to show its growth.
Value Investing
Value investing involves buying the stocks of the companies that have higher than average earnings per share. These companies usually pay high dividends to their investors. They are built upon economically solid foundations but are not usually located in glamour sectors. Most of these companies are leaders in their respective industries. Investors mostly like to hold the shares longer in value companies than in growth companies.
There are advantages or disadvantages of both types of investing strategies. Going by a broad consensus, value investing is considered less risky in the long run.
Is value investing risk free?
No stock investing is ever risk free. It is business like every other business. Therefore it has its own risks and rewards. But some businesses are less risky than the others. Value stocks are generally less volatile than growth stocks. It, however, must not be forgotten that rewards and risks go side by side. More volatile stocks carry greater risks of losses and also better chances of making higher profits. The choice depends upon the investor considering his risk appetite and financial circumstances.
How do you choose your investing strategy?
If you opt for growth investing, you should search for opportunities in current stock and economic reviews. You may not run after hot stocks as such, but look for the markets where growth is occurring.
If you love value stocks, you should browse through the financial records of the companies to find the right stock.
It must be noted that there are good opportunities in both strategies and you should not dismiss one against the other just out of any unfounded prejudice
It can be quite a mystery for people how the stock market provides for trading over one billions shares almost daily. It handles your transaction of one hundred shares quite as carefully and efficiently as ten thousand shares of another stock trader.
Stock market trading originally started in brick and mortar buildings called stock exchanges. We have often viewed the stock trading scenes in films and videos that show hundreds of traders in blue jackets rushing about, wildly gesticulating and shouting at each other. They are shown talking on phones while looking on the monitors and entering data into the terminals. Nothing, one might imagine, could be more chaotic.
The New York Stock Exchange -NYSE-is a fairly representative example of physical stock exchange. You want to buy one hundred shares of a certain stock. Your broker sends the message to his floor clerk on the stock exchange. The clerk alerts one of the firm's floor traders who find another floor trader willing to sell 100 shares of the stock you want to buy. The two traders agree on a price and the deal is settled. The message of the accomplished deal is sent back to your broker who in turn informs you. The whole procedure is over within a matter of few minutes.
With the advent of computers and Internet and the development of stock trading technology, we have online stock brokers. Stock trading takes place electronically. Millions of shares are bought and sold online every day. NASDAQ is an example of electronic stock exchange. Electronic stock trading and related transactions take place almost instantly.
Having understood the process of stock trading, it is time to devise your stock trading strategy as a beginner. Broadly speaking, we have two types of stocks, growth and value stocks. Depending upon the nature of stock you choose, you become a value or a growth investor.
It must be noted that there is actually no hard and fast rule about preferring one stock or strategy to the other. Growth and value strategies are not opposed to each other. They may even complement your portfolio. Each strategy has its own advantages. Experience, however, tells that the value investors usually stand to gain in the long run.
You can even start with both. It is, however, better to take up one and focus your attention on it.
Growth Investing
Growth investing involves investing in stocks of companies that show higher than average growth rates. Growth companies usually keep expanding and do not pay dividends. You hold your stake in the company till it continues to show its growth.
Value Investing
Value investing involves buying the stocks of the companies that have higher than average earnings per share. These companies usually pay high dividends to their investors. They are built upon economically solid foundations but are not usually located in glamour sectors. Most of these companies are leaders in their respective industries. Investors mostly like to hold the shares longer in value companies than in growth companies.
There are advantages or disadvantages of both types of investing strategies. Going by a broad consensus, value investing is considered less risky in the long run.
Is value investing risk free?
No stock investing is ever risk free. It is business like every other business. Therefore it has its own risks and rewards. But some businesses are less risky than the others. Value stocks are generally less volatile than growth stocks. It, however, must not be forgotten that rewards and risks go side by side. More volatile stocks carry greater risks of losses and also better chances of making higher profits. The choice depends upon the investor considering his risk appetite and financial circumstances.
How do you choose your investing strategy?
If you opt for growth investing, you should search for opportunities in current stock and economic reviews. You may not run after hot stocks as such, but look for the markets where growth is occurring.
If you love value stocks, you should browse through the financial records of the companies to find the right stock.
It must be noted that there are good opportunities in both strategies and you should not dismiss one against the other just out of any unfounded prejudice
No comments:
Post a Comment