Introduction: What Is Stock Trading?
Stock trading involves buying and selling shares, which are small ownership pieces of companies listed on the stock market. The main goal is to make money by taking advantage of price changes. When you purchase a share, you own a small portion of that company, and the value of your investment fluctuates based on changes in the company's equity price.
Unlike foreign exchange or cryptocurrency markets that operate 24/7, stock trading occurs during specific hours. For instance, the New York Stock Exchange (NYSE) is open from Monday to Friday, 9:30 AM to 4:00 PM Eastern Time. Some brokers also allow trading before and after these hours.
Example: For instance, if Apple stock (AAPL) is priced at $180 and you believe it will increase, you can buy shares at that price. If the price then rises to $200 and you sell, you make a profit of $20 for each share (minus any fees).
Equity trading has been a significant method of investment for many years. Thanks to the internet and mobile apps, it is now easier for beginners to get involved in global markets with just a few clicks.
How Does Stock Trading Work?
Trading involves buying and selling shares of companies through an exchange or an online platform, aiming to generate profit. Here’s how it works, step by step:
Stock Exchanges and Brokers
Stock Exchanges: These are places where shares are listed and traded. Examples include the New York Stock Exchange (NYSE) and NASDAQ in the U.S., and the London Stock Exchange (LSE) in the UK.
Brokers: To start trading stocks, you need to create an account with an online broker or trading platform that facilitates stock transactions. The broker helps you buy and sell shares.
Trading Directions
There are two primary methods for trading shares:
Go long (buy): If you believe the price will rise, you buy shares and plan to sell them later at a higher price for profit.
Go short (sell): If you think the price will fall, you can borrow shares to sell at the current price and then buy them back later at a lower price. This method is usually available only on certain platforms and is better suited for experienced traders.
Price Quotes
Equity prices are updated in real-time and can fluctuate throughout the day depending on the demand from buyers and sellers. Each price quote includes:
Bid price: The highest price that a buyer is willing to pay.
Ask price: The lowest price that a seller is willing to accept.
Spread: The small difference between the bid and ask prices.
Example: If Apple (AAPL) has a bid price of $179.90 and an ask price of $180.10, and you buy at $180.10 and later sell at $185, your profit per share would be $4.90 (after subtracting any fees).
Stock trading can be affected by many factors, including how well a company is performing, its earnings reports, economic data, and general market feelings.
Types of Stocks
Not all stocks are the same. Knowing the different types can help you choose shares that suit your goals and how much risk you want to take.
Common Stocks
These are the most commonly traded equities. When you buy common stock, you own part of the company and usually have voting rights at shareholder meetings. Your returns come from the stock price going up and sometimes from dividends (a share of the company’s profits).
Examples: Apple (AAPL), Amazon (AMZN), Microsoft (MSFT)
Preferred Stocks
Preferred shares provide a fixed dividend and have priority over common shares in the event of company liquidation. However, they usually don’t offer voting rights. They are a mix of stocks and bonds, making them appealing to those looking for more steady income.
Examples: Preferred shares of major banks or utility companies.
Growth Stocks
Growth stocks are shares of companies expected to grow at a faster rate than the overall market. These equities typically do not provide substantial dividends, as companies tend to reinvest their earnings for growth. They can provide strong returns over time but may be more volatile.
Examples: Tesla (TSLA), Nvidia (NVDA)
Value Stocks
These represent shares of established companies that are valued lower than their true worth based on earnings or book value. They can offer steady dividends and are generally less volatile.
Examples: Johnson & Johnson (JNJ), Coca-Cola (KO)
Dividend Stocks
These companies regularly pay out part of their profits as dividends, making them popular for investors who want a steady income.
Examples: Procter & Gamble (PG), AT&T (T)
Tip for beginners: Many new traders start with common or large-cap growth stocks because they are easier to buy and sell, have a lot of research available, and are generally more stable than smaller or niche companies.
Why Trade Stocks? (Advantages)
Trading shares has been a fundamental approach to wealth building for many years. Here’s why millions of people around the world trade stocks every day:
Potential for Long-Term Growth
Historically, the stock market has provided strong long-term returns compared to many other types of investments. Investing in stocks, especially in well-performing companies, allows you to benefit from their growth over time.
Liquidity
Major equity markets like the NYSE and NASDAQ are highly liquid, allowing you to quickly buy or sell shares during trading hours without causing significant price changes.
Accessibility
With online brokers and trading apps, you can start trading with relatively small amounts of money and often with low or no commission fees.
Dividends
Some shares pay regular dividends, providing investors with a steady income alongside any price increases.
Diversification
The equity market features thousands of companies across various industries, enabling investors to diversify their investments and mitigate risk across different sectors and market sizes.
These benefits make equity trading one of the most accessible and flexible ways to participate in global financial markets. However, it’s important to understand the risks before you start trading.
Who Trades Stocks?
The stock market is a global platform that attracts many different types of participants, from everyday people to large institutions.
Retail Investors
These are individual traders and investors who buy and sell stocks through online brokers or trading apps. The number of retail investors has increased in recent years due to low-cost platforms and easy access to market information.
Institutional Investors
These include organizations like mutual funds, hedge funds, pension funds, and insurance companies. They account for a significant portion of daily transaction volume and can influence market trends and liquidity.
Day Traders and Active Traders
These are individuals or small firms that execute numerous transactions, sometimes dozens in a single day, aiming to profit from short-term price fluctuations. They often rely on technical analysis and current market news.
Governments and Central Banks
While governments don’t engage in buying and selling shares for profit, their monetary policies, interest rate decisions, and regulations can significantly impact equity markets worldwide.
Institutional investors typically provide most of the market’s liquidity, but retail investors are taking on a more significant role due to technology and easy access to buying and selling platforms.
How to Start Trading Stocks
Getting started with investing in shares is straightforward, but achieving success requires planning and discipline.
Step 1 – Choose a Reliable Broker
Select an online brokerage that has low fees, good security, and easy-to-use tools. Popular options include platforms like Fidelity, Charles Schwab, Robinhood, or eToro. Ensure the broker is regulated in your country.
Step 2 – Open and Fund Your Account
You’ll need to create an account and verify your identity with documents like a photo ID and proof of address. Then, deposit money using a bank transfer, debit card, or another supported method.
Step 3 – Research Stocks
Before purchasing, research companies using tools such as:
Fundamental analysis: Look at earnings, revenue, and industry trends.
Technical analysis: Study price charts and trading volumes.
Step 4 – Decide on a Strategy
Select an investing style that aligns with your goals and your risk tolerance:
Long-term investing: Buying and holding stocks for years.
Swing trading : Holding stocks for days or weeks to take advantage of short-term trends.
Day trading : Buying and selling stocks within the same day.
Step 5 – Place Your First Trade
Decide if you want to buy (go long) if you believe the share price will rise, or sell short (if your broker allows it) if you anticipate a decline. Choose your order type (market or limit) and confirm the trade.
Step 6 – Manage Your Risk
Utilize stop-loss orders to automatically sell your shares when they reach a specific price, helping to limit your losses.
Avoid risking more than 1-2% of your capital on a single trade.
Diversify your investments across different sectors.
Tip for beginners: Start small, keep track of your trades, and learn from each decision. Maintaining a simple trading journal can help you track your trades and assess your strategy and progress over time.
Quick Glossary of Stock Trading Terms
Ask Price: The lowest price a seller is willing to accept.
Bid Price: The highest price a buyer is willing to pay.
Spread: The difference between the bid and ask price.
Bull Market: A market trend where prices are rising or expected to rise.
Bear Market: A market trend where prices are falling or expected to fall.
Dividend: A portion of a company’s earnings paid to shareholders, usually in cash or additional shares.
Market Order: An order to buy or sell immediately at the best available price.
Limit Order: An order to buy or sell at a specific price or better.
Stop-Loss Order: An order to sell when it reaches a set price, used to limit losses.
Portfolio: The collection of investments held by an individual or institution.
Volatility: The degree of price fluctuations in a stock or the overall market.
Margin Trading: Borrowing money from a broker to trade more than you could with just your own funds.
Blue-Chip Stock: Shares of large, established companies known for stability and reliability.
IPO (Initial Public Offering): The first time a company sells its shares to the public.
Liquidity: How quickly and easily an asset can be bought or sold without affecting its price.
Stock Trading Examples
To understand how a trade works in real life, let’s go through two simple examples using Apple stock (AAPL).
Example 1: A Winning Trade
Entry: AAPL is priced at $180.
You buy 10 shares for a total of $1,800, expecting the price to rise.
A few weeks later, the stock goes up to $195, and you decide to sell.
Result: You make a profit based on the price difference.
Example 2: A Losing Trade
Entry: You buy 10 shares of AAPL at $180, but the price drops to $170.
To limit your loss, you sell at $170.
Result: Your loss is calculated as follows:
$170 - $180 = -$10 loss per share. Total loss = 10 shares × $10 = -$100 (plus any fees).
These examples illustrate how share prices can fluctuate in various directions. Using stop-loss orders, diversifying your portfolio, and managing how much you invest are important strategies to protect your money.
Final Thoughts / Next Steps
Trading shares is one of the easiest ways to get involved in global financial markets. With the right research and planning, it offers chances for both short-term profits and long-term wealth building.
If you’re just starting out, here’s a smart approach:
Learn the basics: Understand how equity markets operate, how to place orders, and how companies are valued.
Start small: Trade small amounts while you gain experience and confidence.
Focus on quality stocks: Begin with large, well-known companies before looking at smaller or riskier ones.
Create a strategy: Decide if you’re investing for the long term or trading short-term, and stick to your plan.
Practice risk management: Use stop-loss orders, diversify your investments, and never risk money you can’t afford to lose.
Successful trading isn’t about making quick money; it’s about being disciplined, patient, and continuously learning. Start with small steps, keep a trading journal, and develop your skills over time. Eventually, you can explore advanced strategies like options trading and technical analysis to broaden your knowledge.
With the right mindset and preparation, equity trading can be a valuable way to build wealth and understand the factors that drive the global economy.
Legal Disclaimer
This content is for educational purposes only. It is not financial advice or a solicitation to buy or sell any security or derivative. Buying and selling involves risk. Past performance does not guarantee future results. Always check the licensing of brokers on official regulatory websites.
Continue Your Trading Journey
If you want to learn about another growing market, check out our next guide, "What Is Option Trading – A Beginner’s Guide," which explains how options trading works, the key risks to consider, and steps to start safely.
If you’re ready to trade stocks, choosing a reliable platform or app is essential. Visit our "Best Stock Brokers of 2025" or "Best Stock Market Apps" pages for a comparison of trusted brokers or apps to help you get started with confidence.
Beginner FAQ
What is trading shares in simple terms?
Stock trading is the buying and selling of company shares to make a profit from price changes.
How much money do I need to start trading?
Many brokers allow you to start with as little as $50-$100, but starting with a larger amount can help you diversify your portfolio better.
Is stock trading risky?
Yes. Share prices can change quickly based on how well a company is doing, market conditions, and economic events. It’s important to manage risk with stop-loss orders and diversification.
Do I need to trade every day?
No. You can trade actively, but many investors prefer a long-term approach, buying and holding reputable companies for years.
What’s the difference between investing and trading?
Investing focuses on long-term growth, where you buy and hold stocks for multiple years. Trading involves more frequent buying and selling to profit from short-term price movements.
Can I trade international stocks?
Yes. Many brokers give you access to global markets, including Europe, Asia, and emerging economies.
What’s the most common mistake beginners make?
Buying or selling without a strategy or chasing popular shares based on hype. Success requires research, patience, and disciplined risk management.
