Introduction To The Stock Market Part 2

We are now able to buy and then sell stock or Sell and then buy back stock, essentially we can make money wherever the price moves providing we predict the right direction. The Proper terminology used for this concept is called Long Positions and Short Positions.

To LONG a stock simply means to BUY. However, you do not own rights to the stock, but only exercising the underlying value.
You are BUYING the value of the stock in anticipation of selling it back at a higher price.

To SHORT a stock simply means to SELL. However, you do not own rights to the stock, but only exercise the underlying value. You are SELLING the value of the stock in anticipation of buying it back at a lower price

To close a position we do the opposite of what we did to open. So if we had a Short of 100 shares, to close we need to Long 100 shares, and vice versa.

Financial Instruments Used in the Stock Market

Contracts For Difference

A CFD is a derivative. CFD’s stands for Contracts For Difference, they allow you take positions on share prices without needing to buy and sell the underlying asset themselves. You simply own a contract which you buy at one price and sell at another, making or losing money out of the difference.

Options

An Option is a Derivative. An Option is a contract that gives the buyer the right, but not the obligation to buy and sell an underlying asset at a specific price before a certain date known as the expiration.

Spread Betting

A type of speculation that involves taking a bet on the price movements of a security. The investor does not own the underlying stock in spread betting, they simply speculate on the movement of the stock.

Important Terminology

Another concept a trader must familiarise themselves with is margin. Margin is the requirement a broker needs to open a position, if a broker needs 5% margin, then you only require to put up 5%. Products that use margin are called Leveraged Products.

Margins allows rewards to be greater than buying stock outright. It also has the potential to make losses that exceed initial investment – this means you need to add more funds to your account.

Where To Begin?

As there are so many financial instruments that can be used the best place for beginners to trade in EQUITIES. Once you have ample experience you can start experimenting with derivatives. Combining CFDs and Options you can create some powerful strategies that reduce risk yield good rewards.

Account Size

Lets be realistic. You cannot make real profits by using little amounts of money. Traders who enter the market with small pockets get wiped out faster!

To make real profits we suggest you start with an account size of around £10,000. As you will see in the Money Management section, this account size will keep you afloat in the market for quite a while.

Patience and Perseverence

Many people ask how long will it take to master the stock market. This is entirely up to you, the more concerted effort you put in the quicker you will see results, you need to constantly learn and observe and build on experience.

64% of Traders fail because they do not properly understand how the market works, they fail to observe the market consistently and do not adhere to money management rules.

A great start is taking on board everything that is being taught here, this must now be practiced and all the rules must be adhered to, once this has been mastered and experience gained there is no reason for failure.

The difference is Knowledge and Education and Discipline.
Using this knowledge you will gain experience and eventually become a Professional Trader.

You need no qualifications at all, all you require is basic intelligence and good judgment in making decisions given the facts that are in front of you. The smartest people do not always become the greatest traders.

That concludes Introduction to the Stock Market. Please go to Fundamental Analysis Part 1 for the Next Section of the Course.