If you’ve been researching information on stock trading for beginners, you might be a bit overwhelmed by the workings of the stock market. Fortunately, like anything, stock trading has its basic concepts; and once you understand a few of them, you will feel more comfortable trading in the market.
There are some basic rules for buying and selling stocks that include penalties for breaking them. For example, when you buy or sell a stock, it usually takes two days for the money to clear. If you sell a stock before the sale has cleared, you’ll incur a trading violation. The result would be a warning or trading restriction placed on your brokerage account.
When starting out, you’ll want to stick with liquid stocks, which are stocks that can be bought and sold easily. For example, if you have a highly liquid stock, you’ll be able to sell it in a matter of seconds because there are plenty of buyers looking for it. If it’s not liquid, then your transaction might not even go through.
As a beginner, you’ll be wanting the price of your stocks to go up. However, a more advanced form of investing, known as shorting, relies on the price of stocks going down. How does this work? A short seller will borrow shares at one price and pay them back at a lower one, then pocket the difference.
For example, a short seller can borrow 100 shares at $100 per share and then sell them for $100 per share, collecting $10,000. This short seller will now wait for the price to drop to an acceptable level; let’s say $80 per share, and then buy 100 shares costing him $8000. The seller will then return the shares they borrowed and pocket the $2000 difference in price.
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