Stock Trading Knowledge Center

What is Stock Trading?

Stock trading refers to the buying and selling of shares in publicly traded companies. When you buy a stock, you become a partial owner of that company. The goal of trading is to buy low and sell high, generating a profit from the difference in prices.

Key Concepts Every Trader Should Know

Stocks and Shares

A stock represents ownership in a company. When a company goes public, it issues shares that can be bought and sold on stock exchanges. The terms "stocks" and "shares" are often used interchangeably.

Bull and Bear Markets

• Bull Market: A market condition where prices are rising or expected to rise. It's characterized by optimism, investor confidence, and increased buying activity.
• Bear Market: A market condition where prices are falling or expected to fall. It's characterized by pessimism, investor fear, and increased selling activity.

Market Orders vs. Limit Orders

• Market Order: An order to buy or sell a stock at the current market price. These orders are executed immediately but the price may vary slightly from what you see when placing the order.
• Limit Order: An order to buy or sell a stock at a specific price or better. These orders may not be executed immediately but give you more control over the execution price.

Long vs. Short Trading

• Long Position: Buying a stock with the expectation that its price will rise. You profit by selling it later at a higher price.
• Short Position: Selling a stock you don't own (borrowed from your broker) with the expectation that its price will fall. You profit by buying it back later at a lower price to return to the broker.

How Stock Exchanges Work

Stock exchanges are centralized marketplaces where stocks are bought and sold. They facilitate the trading of securities between buyers and sellers, ensuring fair pricing and efficient transactions. Major stock exchanges include the New York Stock Exchange (NYSE), NASDAQ, London Stock Exchange (LSE), and Tokyo Stock Exchange (TSE).

Types of Financial Instruments

Instrument	Description
Stocks	Ownership shares in a publicly traded company
Bonds	Fixed-income securities representing loans made by investors to borrowers
ETFs	Exchange-traded funds that track an index, sector, or commodity
Mutual Funds	Pooled investment vehicles managed by professionals
Options	Derivatives that give the right to buy or sell an asset at a predetermined price
Futures	Contracts to buy or sell an asset at a specific price on a future date

Basic Trading Process

1. Open a brokerage account
2. Research and select stocks to trade
3. Decide on your trading strategy (long-term investment, day trading, swing trading, etc.)
4. Place your order through your broker
5. Monitor your positions
6. Close your positions when your target is reached or if the trade goes against you
7. Review and analyze your trades to improve your strategy