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Stock Trading Guide: How to Trade Stocks


Feng Zhou   Written by Feng Zhou

Stocks, also known as shares or equities, represent ownership or equity interest in a company. Owning stocks can entitle shareholders to dividend payments or voting rights on corporate policies. Stock ownership is based on a per-share basis, and those who own shares are commonly referred to as shareholders or stockholders.

Difference Between Stocks and Shares

Although the terms "stocks" and "shares" are often used interchangeably, there are some distinctions between them. Buying shares implies owning a portion of a company, while the term "stock" is more commonly used to refer to a specific company. The stock market is where shares of publicly listed companies are bought and sold. It provides a platform for trading shares of companies like Amazon, Apple, Netflix, and Alphabet. Different countries have their own stock markets, such as the Nasdaq, New York Stock Exchange, Shanghai Stock Exchange, Hong Kong Exchange, and London Stock Exchange, among others.

In essence, the stock market facilitates the negotiation of prices between buyers and sellers. Companies list their stock shares on exchanges, allowing investors to purchase them. Exchanges like Nasdaq and NYSE monitor the supply and demand for each listed stock. Trading occurs during standard working hours in the host country, for example, from 09:30 to 16:00 (Eastern Standard Time) in the US stock market.

What Is Stock Trading?

Stock trading involves buying and selling stocks on various financial markets. Traders analyze market trends, company performance, and economic factors to make informed decisions about stock transactions. Owning stocks can provide benefits such as asset claims, voting rights, and dividend receipts.

Differences Between Traditional Stock Trading and Stock CFDs

Both traditional stock trading and stock CFDs offer exposure to stock price movements but differ in crucial ways. In traditional stock trading, ownership of assets is direct, and profits depend on stock price increases. In contrast, stock CFDs allow traders to profit from both rising and falling market directions. Stock CFDs are based on price movements rather than ownership, offering flexibility for speculation.

Stock CFDs, often used with leverage, require a smaller initial capital compared to traditional stock trading. However, leverage involves margin requirements, and falling below these requirements can result in automatic position closures with losses.

How Stock Trading Works

To start trading stock CFDs, you need to choose a broker that offers them. Look for a broker with a wide range of stocks across multiple markets and competitive fees. Afterward, open a MetaTrader 4 (MT4) account to access the trading platform and explore available shares. Select the stocks you want to trade by analyzing their price movements through fundamental and technical analysis. Combining these two analysis methods helps identify trading opportunities, and stock CFDs allow you to trade in both directions - going long or short - unlike owning the underlying asset.

Implement effective risk management by setting stop-loss levels and determining lot sizes based on the distance between stop-loss and the capital you're willing to risk. Diversifying your portfolio across different stocks and markets is also crucial.

Advantages of Trading Stock CFDs

Trading stock CFDs offers several advantages, including:

Disadvantages of Trading Stock CFDs

While stock CFDs offer advantages, they also have drawbacks, such as:

Selecting the right trading platform and tools is crucial for a successful stock CFD trading experience. Consider platforms like MetaTrader 4, AutoChartist for trade opportunities, and copy trading for a more passive approach.

Risk Management Tools and Tips

Effective risk management is vital in stock CFD trading. Use risk management tools such as stop-loss orders, take-profit levels, trailing stops, and appropriate lot sizes. Trading calculators, including margin, profit/loss, and pip calculators, can also aid in risk assessment.

Frequently Asked Questions (FAQ) About Stock CFD Trading


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