How Stocks Work
How trading works -- a brief overview
Understand How Trading Works
Knowing how the stock market works is key to getting profits through trading. Here is a brief overview based on the questions that we hear the most. For more detailed information on stock and options trading, please visit our trading tips and terms section. If you are looking for a quick checklist of what you need to start trading, please visit our requirements for stock and options trading section:
What exactly is a stock?
A stock is ownership in a corporation. For example, when you own shares of IBM, you are actually one of the owners of the IBM corporation. Each share represents a certain percentage of ownership in the company.
What exactly is an option?
An option is a contract that gives the owner the right to buy or sell a specific stock and at specific price in the future. Call options give you the right to BUY the stock at a certain price, and PUT options give you the right to SELL the stock at a certain price. That "specific price" is called the strike price, and you are allowed to buy or sell at that strike price anytime prior to the expiration date of the option.
Is there any system that is guaranteed to make you money in the market?
Unfortunately, there is not. It is the nature of a market that "loopholes" self-correct. If you ever see a stock trading system that is guaranteed to profit every time, you can rest assured that it is some type of scam and that you will likely lose money. Our Stock and Options Trading Systems utilize a proven trading methodology, and still have losing trades. The key to trading successfully is to take a long-term approach that can absorb losing trades and consistently produce high levels of profit over time.
Why not just buy stocks that are going up and sell them when they start to go down?
This is a common mistake that beginners in the stock market tend to make. When you look at a stock chart, it is important to realize that at any point along the way, you do not have the advantage of knowing what will happen next like you do when you have the advantage of hindsight. It is advantageous to understand the TREND that the stock is in when you enter a new position, but it is the nature of a market that it is IMPOSSIBLE to know for sure which way the stock is heading next. This is why a disciplined trading strategy is crucial to limiting losses on stocks that don't go your way.
What is Day Trading?
Day Trading is a trading strategy where you buy and sell a stock in the same trading day. In other words, you never hold a stock overnight because you are always in and out of positions very quickly.
What is Swing Trading?
Swing Trading is a trading strategy where you hold stock positions for a short amount of time, but longer than a day trade. Swing trade positions can last anywhere from 2-30 days, and generally try to take advantage of short and mid-term movements in stocks.
How can I make money when a stock goes down in value?
Short Selling is a method used by traders to profit from the decline of a stock price. For more information, please visit our trading tip on short selling.
How can I make money when a stock doesn't move at all?
Through various Options Trading strategies, you can actually profit from stocks that have little or no movement over time.
I want to learn more about stock and options trading-- how should I get started?
This is where Crestrade comes in. Your membership with us will give you full access to trading experts who will not only alert you when they see great trading opportunities, but also be there for you in our trading room when you have questions. Just imagine how quickly you will learn to trade for big profits when you have access to a stock trading professional throughout the trading day!