How To Pick Stocks (Part 3): Understanding The Mechanics

Oct 07, 09 How To Pick Stocks (Part 3): Understanding The Mechanics
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Many individuals entering the stock market have previously considered playing the stock market.  As we have discussed, it is not as easy it seems.  This post will discuss the types of stocks one can trade, as well as the actual mechanics trading stock on the stock market.

Types of Stocks

There are essentially two types of stocks.  One is called common stock and the other is called preferred stock.  Most individuals own and trade common stock.  With common stock, the trader represents the majority of the stock and he/she has the right to vote on the management, as well as decide how to divide the dividends.

Preferred stock is the same as common stock except that the traders enjoy fewer rights.  However, the beneficial thing about preferred stocks is that the traders do not partake in dividends.  This allows companies to have more freedom in deciding what to do with the income from dividends.  For those new to stock trading, it is best to look for companies that earn larger profits on their preferred stocks because this means that you stand to earn bigger dividends.  Thus, you have a better return on your investment.

Trading Stock

You need to understand this basic premise because it is one of the fundamental tenets of the stock market.  If you are just starting to trade stock, it is imperative that you are aware of what a stock is, what trading entails, and how trading stocks can affect your level of success.

Stocks are a unit of ownership that one has in a particular company.  Trading is the simplest way of describing the buying and selling of something.  It can also describe a financial tool that is used stock in trading.  Stock trading simply labels the purchasing and selling stocks on the financial market.

Methods of Stock Trading

Experts believe that a beginning trader does not have enough knowledge about the intricate details of buying and selling stocks to make the complicated calls.  However, if you are a beginner, it just as important to have a solid grasp on the basics in order to know how to execute certain stock trading strategies.

In stock trading, two interactions take place once a trader executes a trade.  The first occurs on the exchange floor and the other one happens using electronics.  If one is trading on the exchange floor, it can be very intimidating because there are thousands of people moving fast, shouting heatedly, and making gestures to one another, all while intense discussions are taking place on the phones.

There are also those who intently watch the monitors for any fluctuations, while almost simultaneously entering data into each of their respective terminals.  In regards to electronic trading, the exchange floor is definitely more chaotic.  Now, there is a stronger demand to shift trading completely to the networks and remove it permanently off the trading floors.  More traders are utilizing the Internet because it is less intense and much more convenient.

Stock trading is a complicated premise.  Once you understand how value is assessed, you will have to understand the details of the process.  Although many people choose to use a broker, it can never hurt for you to have a thorough knowledge of what happens to your money once you say “Buy” or “Sell”.

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1 Comment

  1. Thank you for your post, i liked studying it. I don’t concur with it all however it was a great post.

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