How Selling Stocks Works-If you really want to know how stock investment works, how to invest in stock market for beginners and make real money. This is it.Investing in stocks and shares isn’t as hard as it seems and finding out how to invest in stocks is just a matter of understanding the process correctly and finding the right information sources.
Stock Market investing can be a pretty intimidating process for someone who is new to the stock market. Some investors may not realize all the resources they have on hand to help them learn how to invest in stocks . With the online trading industry booming, it’s never been more popular for people of all ages to start learning how to invest in stocks.
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How Do Stocks Work?
Understanding how stocks works is fairly simple. Companies sell shares of their company to investors, who then sell those shares back to other investors. Owning shares in a company makes the investors part owners of the company. If investors sell shares at higher prices than they bought them, the value is said to go up, and if they sell for less than they paid, the value is said to go down.
Initial Public Offerings
When a company wants to raise money for expansion, it goes public by making an initial public offering (IPO) of common stock. What this means is that they are offering shares of their company’s stock (ownership in the company) to investors.
This is a familiar process if you’ve followed the high-profile IPOs of Facebook (ticker: FB), Twitter (ticker: TWTR) and other tech companies. Typically, the amount of the company that is sold is only a fraction of its total ownership, so the price set for the stock (as determined by open bidding once it goes public) determines the value of the entire company by extension.
Working with an underwriter (a Wall Street bank), the firm tries to guess an appropriate valuation (since that’s what actually goes into the pockets of its executives and private investors) but their valuation is usually off the mark in one direction or the other, sometimes by quite a bit. For example, the day it opened TWTR quickly doubled from its offering price.
How Does the Stock Market Work?
For the stock market to work there must be buyers and sellers. These buyers and sellers trade existing, previously issued shares which are offered by one investor and bought by another. The fact that they are previously existing shares means that most trading on the stock market has no direct impact on the company being traded. The buyer can place a market order to purchase at the current price, or a limit order to purchase if the stock reaches a certain price (which can be lower or higher, depending on the trading strategy). That order is matched up with a seller who has put shares up for sale.
The picture Wall Street likes to paint of an opening bell followed by frantic trading in a huge room full of buyers and sellers is pretty much a historical fiction. Stock trading today is done electronically and the prevailing sound is silence, other than the fans that cool the huge supercomputers used by the exchanges and institutional traders. This is good news for the savvy trader and investor because it means a more efficient and predictable marketplace with much less left to chance and randomness.
What Are the Different Types of Stocks?
Basically, there are two types of stock issue. There are Common stock shares and Preferred stock shares.
Common stock shares are, well, the most common when referring to buying and selling stocks. The ownership of a share represents a claim on the profits of the company and offers the owner voting rights to aid in the direction of the company’s management. Common stock was created to offer gains through capital growth.
Preferred Stocks
Preferred stock functions much like a corporate bond and generally do not offer any voting rights. However, preferred stock typically offers stable dividends, unlike common stock where the dividend can be variable, withdrawn or not even offered. Another protection that is offered to preferred stock owners is they are paid before common stockholders in the case of the company’s liquidation.
Custom Stock Classes
Preferred and Common stock are the two major styles of stock. However, it is also possible for companies to customize different classes of stock to fit the needs of their investors. One of the reasons for creating share classes is so the company can keep voting power concentrated within a certain group of owners. These different classes are often designated in their trading symbols by adding the letter A or B at the end of the symbol.
Warrant Stocks
Additionally, some stocks are sold and placed under Warrant. A warrant typically is placed on the insiders or initial investors that own more than 10% of the company’s shares. The warrant typically states that the shares cannot be sold for 3 to 5 years. Other kinds of warrants allow the insiders to purchase more stock after a given length of time.
To sum it all up, most stocks are issued as common. Common stock can receive variable dividends and have voting rights. Preferred stock typically costs more to buy, but has a dividend fixed in perpetuity with higher creditor rights than the common share owner. Both face the risk of company failure.
How to Sell Stocks:
- Decide whether you’re a trader or investor. This comes down to how long you plan on holding onto your stock. You want to pick a style of selling that matches your financial goals.
- Use an online broker. Online brokers make it easy and convenient to sell your stocks.
- Test out the trading platform. Make sure the broker you select allows you to trade how you want. If you’re going to be day trading, pick a broker known for speed. If you’re a beginner, start with a broker with great resources an educational tools.
- Make your sale. Use your brokerage to set your sale price and begin selling your stock.
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Whether you’re selling stock you’ve invested in or want to initiate a bearish short position as a trader, there are many different reasons to sell stock.
While some traders might watch corporate insiders to see when they sell their company’s stock, the most common reason individuals sell their stock is that they need the money they’ve invested.JOIN FOR FREEShort Like a Pro!TradeZero provides a commission-free structure that fits an active trader’s needs.
What You Need to Consider Before You Sell
You can simply enter a market order with a stockbroker and sell your stock. This is done at the current market price if you need to sell for the money, and you don’t have to consider much else.
On the other hand, if you want to sell your stock to buy another stock or if you want to trade one stock in order to make an investment in another stock, there are several things to consider.
1. Are you a trader or an investor?
First, think about your planned trading or investment horizon, which sets out the average time you plan to hold stock. Are you a trader or an investor? Both types of market participants buy and sell stock, but they have different ways of achieving the same goal of overall profitability.
For example, a day trader will have a much different time frame and criteria for selling stock than a long-term investor, so make sure your stock selling activity is part of your overall trading or investment strategy.
You can read Benzinga’s compilation of investing books for beginners to learn how to trade stocks for investment purposes.
2. Why do you want to sell your stock?
Before you sell your stock, consider your reasons for selling it. Be sure you’re not acting on impulse because of an adverse market move, especially if you’ll incur a loss. Remind yourself of the reasons you purchased the stock in the first place.
Be patient and try to research why the adverse move occurred. Remember, you buy stocks to make money, not to take losses.
If you actively trade short term strategies, your main reasons for selling stock will be to take a quick profit or a smaller loss. You might also sell your stock because market fundamentals indicate a looming recession, especially if they’re invested in cyclical stocks that stand a good chance of showing a future price drop.
You might also sell stock because you follow the company’s current situation and future outlook.
From here, you can tell the prospects for the company’s industry, including whether the company’s stock stops paying or reduces the amount of its dividend.
Each industry is exposed to different fundamental risks. For example, automobile companies might need to do a costly recall that would severely cut into earnings. Electric utilities may be liable for disasters, such as Pacific Gas and Electric found liable for the deadly Camp Fire in Northern California in 2018.
When news like this breaks, it can be a good fundamental reason for selling your stock in the affected company since its price is likely to decline quickly.
3. Understand sell order types
The order types for selling stocks are pretty straightforward and are in line with how the stock market works. Traders use different order types to limit their buying price, maximize their selling price and limit losses.
Market sell order. This type of order allows you to sell the stock immediately and it guarantees that the order will be executed without specifying the price of execution. Market orders typically get filled at or near the bid price when selling stock, just as they are filled near the offer price when buying. Keep in mind that the last sale price, which is generally displayed on a screen or stock ticker, may not be the price you’ll get when you trade using a market order.
Limit sell order. This is a type of order to sell stock at your specified price or better, which is what the word limit refers to.
Sell stop order/stop-loss sell order. A sell stop order triggers an execution once the stock reaches a certain price below the prevailing market, known as the stop price. Upon the market reaching and trading at the stop price, the sell stop order then becomes a market order to sell the stock at the best available price.
Trailing sell stop order. When you look at a profit on a long stock position and have placed a protective sell stop order to avoid taking more of a loss, you can also protect your profits by using a trailing sell stop order. This order is similar to a stop order, but its price is automatically moved up according to the parameters you specify as the market continues to rally, thereby improving the sale price you get if executed.
Conclusion
Investing in stocks is the easiest way for you to try getting rich quickly. Or that’s what many people say. So why don’t more people invest in stocks, and buy shares in companies they think will make it big? It’s not because they know less about stocks than about any other subject — it could be that they know too much. If you want to get rich quickly, the fastest way is through stocks or “equities.” This article will tell you how it all works — what are stocks, its risks, benefits, etc.