The stock market can be a confusing and intimidating place to work; you can often feel lost and not know where to seek the right guidance. This article will help guide you through the process of trading, the basics, and the pro strategies that most traders won’t share. But first, there are a few basics you need to be well-versed with, such as the various regulatory bodies, the trading hours, as well as, some commonly used terminology.
- 1 5 Things to Bear in Mind as a Trader
The NYSE [New York Stock Exchange] and Nasdaq are the largest American stock exchanges and differ from one another. The NYSE dates back to 1792, whereas the Nasdaq was established in 1971 as the world’s first electronic stock market.
FINRA is an autonomous regulatory body that enforces governing rules on day traders and brokerage firms across the United States. Its mission is to safeguard the public against fraudulent trading practices.
Additionally, FINRA serves as an administering board to conduct pre-qualifying examinations for security professionals. The Nasdaq is now popularly known as FINRA or the Financial Industry and Regulatory Authority. The prime difference between the NYSE and Nasdaq:
I. NYSE is an auction market where individuals are buying and selling stocks amongst one another, i.e., the highest bid is matched to the lowest price.
ii. Nasdaq is typically a dealer market where the participants are buying or selling stocks and securities through a dealer. Buying and selling transactions are matched electronically in real-time.
As of 2019, the trading hours on the NYSE are from 9:30 AM to 4:00 PM local time. The Nasdaq is a global electronic marketplace, and its trade timings are as below:
- Pre-Market trading hours- 4:00 AM -to- 9:30 AM
- Normal trading hours- 9:30 AM -to- 4:00 PM
- After-hours- trading- 4:00 PM -to- 8:00 PM
Important Terms Used in Day Trading:
- Covering – It refers to the buyback of borrowed stocks at a profit or loss as a result of closing out an open short position. It involves the purchase of the same security, which was initially ‘short’ sold and returning the shares initially borrowed for the short sale.
- Going Long – it is an expression of indicated interest to buy a specific stock with the objective of selling at a high price, at a later point of time when the stock appreciates in value. For example., going long on 500 shares of XYZ stock @ $50, then the transacted value would be $25000. However, if the stock is sold at $50.20, then the gross earnings would be $25,100, and a net profit of $100 minus commission.
- Short Selling – It is the opposite of ‘Going Long.’ It means, to accept a bearish position, with the hope of profiting from a stock that decreases in value. In order to benefit from the situation, the security/ stock must be purchased on margin and then sell it in the market, only to buy back at a later date.
- Spread – refers to the differential amount between the purchase and sale of stock. It is also known as ‘Bid-Ask spread’.
- Support – it indicates the steady and assurance level of a stock price to prevent slipping below for a period of time. The support level of the stock is generated by the entry of buyers in the market whenever the asset cascades to a new low price.
5 Things to Bear in Mind as a Trader
It can be lucrative to take advantage of the small price moves- if it is played correctly with the right strategies in place. Similarly, here are a few strategies that will help you along the way:
1. Knowledge and Awareness:
Besides being knowledgeable about trading procedures, day traders must have an innate interest to stay updated on stock market news, events, interest rates, economic outlook, etc. New traders must learn to plan and prioritize the list of stocks they intend to trade and keep.
2. Funds and Time:
Estimate and assess the amount of capital required to risk on each trade. It’s very normal for traders to risk less than 1 to 2% of their trade volume on the margin account. Keeping this in mind, day traders must make a practice to set aside reserve funds to meet any losses that may arise.
Day trading requires time, effort, and commitment. Every day, a certain number of hours are needed to meet and carry out the trading activity. It’s not enough to have a mere couple of hours.
3. Start Small:
Day traders who are new to the job must focus on the limited number of stock picks because it is easier to track them. It would be a good idea to trade in small fractional shares so that it would be simpler to specify and invest in mini dollar amounts. For example., if an Apple share is trading at $200 and if the preference is to buy a share worth $50; many brokers can permit the purchase at one-fourth of the share value.
4. Avoid Penny Priced Stocks
Stocks valued at negligibly low prices will not fetch anything. It is unreal to expect a huge appreciation in prices.
As per regulatory policies, if any stock hits a rock bottom price less than $5, then it gets delisted from stock exchanges. Such stocks are tradable over the counter only. So, a trader must steer clear of such stocks unless there are real opportunities and insights in buying them.
5. Timing Those Trades and Being Realistic:
It is common to notice an upsurge in price volatility when traders and investors execute their trades as soon as the market opens. An expert trader can easily detect patterns and make selective profits. This may not be so in the case of new and novice traders who would do better by first reading and understanding market moves.
Normally, the middle hours are less volatile, and the movement gradually picks up towards the closing bell. The rush hours definitely offer opportunities. However, it is safer for new traders to steer clear of them.
It’s not necessary to win all the time to remain profitable. Many traders actually manage to only win less than 60% of their trade volume. So, it is good to ensure that the risk on each trade is limited to a small percentage of the account- pursuant to a set of well-drafted entry and exit methods.
It is better to get a thorough orientation over the risks and pitfalls involved rather than get into blind acts of ignorance. The developments in stock trading and broking have allowed for free brokerage accounts that make for a more fair and even playing ground.
The regulatory watchdogs are always on the lookout for intentional or unintentional acts of faults. Such control measures are deemed necessary to curb malpractices and protect investor interests.
Unsafe trading practices, if not checked, can lead to an improper picture of earnings and reporting. Transparency and trading with ease is the effect of a robust compliance network.
HussaiN is a full-time professional blogger from India. He is passionate about content writing, Tech enthusiast & computer technologies. Apart from content writing on the internet, he likes reading various tech magazines and several other blogs on the internet.