We’re going to be upfront and tell you that this guide is not enough for you to learn how to trade stocks. However, it is a great introduction to the world of stock trading and investments, especially if you’re a beginner that’s just gotten interested in the topic.
This guide was created to provide a brief overview of how the stock market works and how one can best learn how to trade stocks. Just be aware that learning how to trade stocks is a big undertaking that will require a lot of studying, practice, and dedication.
So, if you’re interested in the basics of stocks, this guide is perfect for you.
Trading or Investing in Stocks?
Before we go any further we have to clear something up to avoid confusion. There is a distinct difference between trading stocks and investing in stocks. The main difference is the time: traders buy and sell stocks within a much shorter time than investors.
In turn, this affects everything from how you analyze stocks to the brokers you use. Because of this, you must decide how you’re going to make use of the stock market before you get started.
In general, the following guide is aimed at stock trading, ie. the strategies, brokers, and knowledge you need to trade stocks in a short time frame ranging from a few minutes to a couple of weeks.
In case you’re looking to learn how to invest in stocks, we advise you to check out the guide we’ve written on the topic.
Stocks & Shares
Another thing that seems to confuse new stock traders is the use of “stocks” and “shares”. This is mainly because most people use them interchangeably and because the use differs from different English-speaking regions.
Technically, a share is the smallest unit offered as an investment in a company while a stock (also known as an equity) is a collection of shares used as a single investment.
What is a Stock?
Now, let’s get started with this beginner’s guide on how to trade stocks.
A share (or a stock as explained above) is a financial instrument that represents fractional ownership of a company. The stock gives the owner the right to a part of the company’s profits and – depending on the number of stocks you own – also an influence in how the corporation is operated, mainly by voting right.
Generally speaking, you can buy shares in any registered company. However, in the world of online trading, you’ll mostly be trading publicly listed companies, ie. companies that have been registered on one of the world’s stock exchanges (read more in the section below).
Exchanges and Markets
To keep it short, a stock exchange is a place where publicly listed stocks are traded. A stock exchange is always located in a physical building where, back in the days, all trading and investments were handled by stockbrokers who worked at the exchange.
A stock market, on the other hand, is a collective term used to describe the stocks offered in a certain region or within a specific field, for example, “the U.S. stock market” or the “Tech stock market”.
Today, most trading – similar to most other things in life – is handled online. To get access to a stock exchange and the shares listed there, you have to find a stockbroker that connects you to it. This can still be done through an actual person working at the exchange, but most trading is conducted using online brokers or banks with investment and trading services.
Most stock exchanges aren’t strictly for stocks but also feature other instruments such as options, indices, and exchange-traded funds (ETF).
To give you a better idea of what a stock exchange is, we’ve listed a selection of the biggest stock exchanges ever below.
- New York Stock Exchange (NYSE) – the biggest stock exchange in the world featuring several of the world’s largest corporations. The exchange is located on Wall Street in New York City.
- Nasdaq – the second-largest stock exchange is also located on Wall Street, NYC, and features mainly the biggest tech companies in the United States as well as minor exchanges around the world.
- London Stock Exchange (LSE) – the LSE is one of the oldest and most prestigious exchanges in the world. Located in London, the LSE features all the biggest companies in the UK.
- Euronext – the official stock exchange of the European Union operates using several smaller exchanges spread across the EU, including Amsterdam, Oslo, and Lisbon.
- Hong Kong Stock Exchange – companies operating in Hong Kong can be listed on the Hong Kong Stock Exchange. It’s one of the most influential exchanges in all of Asia.
- Johannesburg Stock Exchange (JSE) – there are several exchanges on the African continent but no one is as big and influential as the JSE, located in Johannesburg, South Africa.
- Bombay Stock Exchange – India actually has several stock exchanges but the Bombay Stock Exchange is the biggest. This is because Mumbai (formerly Bombay) is the business capital of India.
- Nasdaq Nordic – as mentioned, Nasdaq operated international stock exchanges. The most prominent one being Nasdaq Nordic that features the top corporations in Scandinavia (Sweden, Denmark, Norway).
Trade Stocks of the Exchanges
As mentioned at the beginning of this guide, most trading is done with, so-called, publicly listed companies. In order to become publicly listed, a company has to live up to several strict requirements regarding its revenue stream, products, and services offered, as well as years in the industry.
This ensures that only the biggest, most stable, and most trustworthy companies become available on stock exchanges.
Trade Penny Stocks
There is an alternative to trading regular stock and it is called penny stock trading. Now, as the name entails, penny stocks are cheaper and smaller stocks (that you “can buy for a penny).
Because of this, most penny stocks are not listed on an exchange and therefore considered more erratic and harder to analyze than regular stocks. Therefore, the risk of trading penny stocks is much higher and it’s typically harder to access since legitimate brokers tend to avoid offering them.
If you want to trade penny stocks, you need to prepare adequately and you should really consider the additional risk involved. Therefore, we rarely advise our readers to focus on penny stocks.
How To Learn Trading Stocks
Now to the million-dollar question: how do you learn stock trading?
And let us be frank by saying that learning how to trade stocks is not an easy feat and it will require enormous dedication and many, many hours of studying, strategy development, and trial and error.
In fact, all professional stock traders never stop educating themselves since there are always ways to improve their skills. In other words, you will never be done with learning how to trade stocks.
With that being said, there are several trusted and reliable ways to study stock trading and we’ve listed the most efficient and popular ways below.
Maybe the most relevant and suitable method of learning stock trading is by using online resources and courses. There are a plethora of online courses covering all topics related to trading online. Some of them are free but most of them do charge.
Obviously, like most courses online, the level of quality is varied. Therefore, we strongly advise you to spend the time required to find a course that’s suitable for your needs and that has good reviews from previous participants.
For instance, try finding a great beginner’s course if you’re new to the world of stock trading, or look for a specific course for that new strategy that you want to master.
Stock Trading Books
Traditionally, traders learned how to trade by reading books, and not much has changed. We honestly believe that some of the best stock trading resources, to this day, are books. Some of which were written decades ago.
Our team’s favorite stock books include:
- How To Make Money on Stocks
- The Intelligent Investor
- Market Wizard
- A Beginner’s Guide to the Stock Market
- A Beginner’s Guide to Day Trading Online
Every stockbroker that we recommend on this site offers some form of educational material. Most of it is written as guides but several top brokers offer regular stock webinars where they help educate their customers on the arts of stock trading.
That’s why we also recommend that our readers check out their broker’s educational material, looking for a webinar or online course that suits them.
The benefit of this type of education is that brokers tend to offer it for free as long as you’re an active customer that trades on the regular, using said brokers platform.
Find a Stockbroker
Finding a suitable stockbroker is vital for anyone looking to trade stocks. As you can imagine, there are many factors that should be considered when picking a broker and it’s not a process that you should rush through.
We’ve compiled stockbroker recommendations for most jurisdictions around the world where we compare the leading actors, highlighting their pros and cons. In addition, we’ve created reviews of a huge number of brokers where we cover all the essential information. These reviews are then combined with real user feedback which we collect from platforms such as the App Store, Google Play, and Trustpilot.
We have done this to make the process of finding a broker easier for everyone and we suggest that you use our recommendations.
With that being said, you shouldn’t only rely on our reviews and guides, and you really need to know what separates a good stockbroker from a bad.
License and Regulation
The single most important factor when picking a broker is safety and the only way to confirm that a broker is safe is to ensure that it’s licensed and regulated. Most jurisdictions and countries have their own financial regulatory bodies which are in charge of approving or denying brokers access to said jurisdiction.
Several top-tier regulators serve as the mainframe for online broker regulation. For example:
- Financial Conduct Authority (FCA) in the UK
- Australia Securities and Investment Commission (ASIC) in Australia
- Securities and Exchange Commission (the SEC) in the United States
- Cyprus Securities and Exchange Commission (CySEC) in the European Union
- Financial Sector Conduct Authority (FSCA) in South Africa
For a broker to operate legally, it has to be licensed and regulated, following strict guidelines on customer and fund protection, transparency, and safety.
Assets and Markets
There is not a single broker in the world that offers access to every stock and instrument available. Therefore, you need to first figure out which stock markets you’re interested in trading on, and then find a broker that offers access to those markets.
At this point, you also want to consider how you want to trade your stocks since this will affect how you learn to trade stocks. In recent years, derivatives trading such as CFDs and spread betting has become increasingly popular and there are a plethora of brokers providing these features.
There are also what’s typically called traditional brokers that have direct access to the stock exchanges. This type of broker is mainly used for long-term stock investments and not so much for day or swing trading.
Platforms and Accounts
You also want to evaluate the different platforms offered and your options to pick account types. Some brokers only have one platform and one account type while other brokers provide several platforms and a number of accounts.
Most commonly, brokers work with third-party software developers, e.g Metaquotes who have developed both MetaTrader 4 and MetaTrader 5. There are plenty of proprietary platforms as well and they are often offered in combination with third-party software.
An important part of learning how to trade stocks is picking the right account type. Firstly, it has to be an account that you can afford but it also has to support your ability. Furthermore, brokers often offer DMA, ECN, CFD, and other types of accounts. If you’re not familiar with those terms, we suggest you check our corresponding guides.
Educational Material and Demo Accounts
While learning how to trade stocks as a beginner, you need to study and practice continuously. A good stockbroker will provide you with the tools needed to do so.
For us to consider a broker “top-tier”, it has to have a solid educational section with information, guides, and videos for every type of trader. It’s a vital part of any platform and broker worthy of use.
Furthermore, modern online brokers offer demo accounts to help beginners learn how to trade stocks and other instruments. A demo account is pretty much an exact replica of a regular trading account. The big difference is that trading is conducted using virtual funds, ie. there is no way to make any real profit, but there is also no risk involved.
Because of that, demo accounts remain one of the most useful tools that anyone looking to learn how to trade should use.
Stock Trading Strategies for Beginners
As this is an introduction course, we will not be going into detail about actual stock trading strategies and how to apply them. In fact, for those that are interested, we’ve created several guides covering a range of trusted strategies.
Instead, we will offer a closer look at the three most common ways to trade and invest in stocks. Ultimately, you will have to pick which strategy to follow when learning how to trade stocks so please, pay attention.
Day trading is a common term associated with quite a lot of confusion and misinformation. Basically, day trading is the act of trading using time frames that fit into a single day, often as short as a few minutes up to an hour or two.
It is a hectic way of trading that requires high levels of skill, analytic ability, and luck. To find value on the market several times a day, a day trader needs to have a complete understanding of how the market works, as well as how the stock in question tends to behave.
Day trading can also be extremely lucrative for those that succeed.
Swing trading shares a lot of similarities to day trading but is also vastly different. The main difference between day trading and swing trading is the time frame used for each position. When swing trading, instead of opening and closing several positions every day, you keep positions open for a couple of days or even weeks.
A lot of people wonder if day or swing trading is better than the other, but it’s the wrong way to look at it. You see, both methods are very effective when mastered. However, they do require different analytic strategies as well as a unique understanding of the financial markets.
In other words, it’s not about which method works better, but rather which method works better for you.
Obviously, day trading requires more time on a day-to-day basis, while swing trading can be a bit more passive at times.
Lastly, we have long-term stock investments which is the original way to benefit from stocks. When investing in stocks you do so with a long-term plan that can span 5, 10, or even more years.
The idea of investing is that you buy shares in a company today with the intention to sell them for a profit further down the road. When investing, you also buy the actual shares in a company which gives you the right to dividends and the right to vote in major company decisions.
Depending on how many shares you own in a company, you can either be a majority or minority stockholder. Just keep in mind that not all online brokers are suitable for long-term investing since they offer derivatives, ie. instruments based on an underlying stock.
In order to buy an actual share from a company, you need a stockbroker with access to the exchange where the company is listed.