A few good questions worth asking yourself, in order to determine your profile:

• What are your objectives in trading stocks? (be as specific as you can be)
• How much risk are you willing to tolerate?
• How well do you know the different types of securities (stocks, options, derivatives…)?
• Do you wish to be able to liquidate your assets quickly, if the need arises?
• How much time are you willing to spend in studying and monitoring your portfolio and the market?
• Are you interested in trading on an international level, or solely domestic?
• Do you have a preference for socially-responsible corporations, or does it matter not?
• For how long do you expect to be trading stocks?

By answering these questions, a few other good interrogations will likely go through your mind, helping you determine your preferences and requirements a little bit better. You will then be one step closer to finding the trading strategy that’s right for you!

Buy and Hold: to buy and hold is a long term stock trading strategy. It implies buying stocks and keeping them for a long period of time before selling them. For a good number of stocks, it is historically a sound strategy, as the stock market has always gone up as a whole in the long run. Many investors, such as Warren Buffet, typically invest on companies which they are confident will be successful in the next 10 years or so, making them less likely to suffer the drawbacks on cycles and inflation.

Capital Gain: when the value of an asset exceeds its purchase price, the increase is called capital gain. Capital gain is either realized or unrealized, depending on whether the assets have actually been sold or not.

Capital Loss: when there is a decrease in an asset’s current value versus its purchase price, there is a capital loss.

Day Trader: a day trader is an investor who typically holds assets for a short period of time, usually trading them in the same day. Traders who perform 4 or more day trades within 5 business days are referred to as pattern day trader by the SEC (U.S. Securities and Exchange Commission), and may be subject to particular requirements, rules and restrictions.

Dividends: some corporations can decide to distribute earnings directly to all or part of their shareholders, rather than reinvesting them. Such earnings distributed are called dividends, and dividend stocks have a parameter called Dividend Per Share (DPS). Dividends most often come from stable and long established corporations.

Equity: equity represents ownership in a corporation, in the form of common or preferred stock. It can also be interpreted, in the case of futures or margin accounts, as the net value of the account if all positions were to be closed and margins paid off.

Going Long: going long means that a trade is done with the expectation that profit will come from an increase in the exchange rate. It the most intuitive and optimistic way a trade can be profitable.

Going Short (Selling Short): going short is the opposite of going long; it occurs when a trader is confident in making profit from a drop in the value of the traded assets.

Growth Strategy (growth stock): betting on growth stock is a stock trading strategy in which a trader aims at generating capital gains rather than dividends. Growth stocks are expected to grow at a rate superior than the average, and growth companies usually reinvest earnings. Technology companies often classify themselves as growth companies.

Hedge Funds: hedge funds are investment funds actively managed for a limited number of investors and institutions, using a wide range of investment strategies, methods and tools, such as short selling, derivatives, swaps and arbitrage. Hedge funds usually require a rather high minimum investment, and are managed by professionals charging management and performance-based fees.

Large Cap: large cap stands for large capitalization, and refers to companies with a market capitalization value of 10 billion US dollars or more.

Mid Cap: mid cap and refers to corporations with a market capitalization value between 2 and 10 billion US dollars.

Overweight: being overweight means that an investor’s portfolio holds more of a particular type of stock compared to the weight of that type of stock, in the relevant index. For instance, if an investor’s portfolio is comprised of 30% Growth stocks, and that Growth stocks represent 20% of the associated index, the portfolio is referred to as ’10% overweight’ in Growth stocks.

S&P 500: S&P 500 stands for the market-value weighted index of Standards and Poor’s choice of 500 large cap common stocks traded currently in the United States. It is a good representation of the American economy as a whole.

Shorting: shorting, or short selling, or going short, means that an investor, hopeful that some assets’ value will drop, borrows them from a third party (a broker, most often), sells them, and makes the promise of returning the assets at a later time. The profit made is the difference between the price of the assets when sold versus its price when they were bought back. This can obviously yield a loss for the trader if the value goes up.

Small Cap: small cap, or small capitalization corporations, typically hold a market capitalization of between 300 million and 2 billion US dollars.

Spread: the spread for a security or asset is the difference between the current ask and the current bid price.

Volatility: volatility is a measure of risk for a security. It refers to the standard deviation of a security’s price over a certain period of time. High volatility means that the price of the security tends to move up and down quickly over a determined period of time, making it more risky.

1) Know the basics!
If you ever practiced sports to a competitive level, you know that mastering the basics is the key to victory. The same goes with trading stocks. Knowing the investor’s language and basic principles are fundamental: the lingo, acronyms, charts, tables, reports, economics etc.

Whether you wish to follow a trusted source’s strategy or come up with your own, the outcome will likely be determined by how well you are able to filter the information that comes your way. Knowing the basics can help a great deal in spotting flags and opportunities – and also help you turn flags into opportunities!

2) Find the online stock broker that’s right for you
There’s a good deal of brokers out there and there is certainly one suited for you needs. A good analysis of their fees and commissions, allowed investments, trading tools and resources can be very helpful in making the good decision. Shop for yours: read reviews, forums and blogs to find the best match.

3) Invest on knowledge first
Information travels fast and transactions are done even faster. Having access to the right information at the right time ultimately has a big impact on your trading strategy.

Staying updated with the latest news and information online, reading the relevant reports, following seminars and webinars, subscribing to the right newsletters and specialized magazines – all are great tools that can offer great r.o.i. in the long run.

4) Practice self-control, patience and discipline
Everybody makes mistakes. Improve your odds by getting into online stock trading gradually. Consider trying out a stock simulator before making the big jump. Practice makes perfect!

Find your investing strategy and stick to it. Hold on to good titles and get rid of the ones that don’t perform as well as you thought they would. When a stock doesn’t perform, find the strength to accept it and cut your losses. On the opposite, when your stock goes on an uptrend, be patient before selling and it will likely pay off.

Also, consider joining communities of online traders like yourself. When in doubt, share your thoughts and explore opportunities.

Step 1: Learn, learn, learn!
Okay, that one is obvious, but yes, you should learn as much as you can about economics, stock markets and everything in between. It is mandatory!

Step 2: Determine you stock trading profile
Now that you’re certain that online stock trading is right for you, find out what kind of investor you are. How much risk can you tolerate? Would you prefer lower performance in exchange for more steady income, such as periodic dividends? Do you wish to make certain ethical/personal choices when trading stocks? Make sure you have the knowledge and resources necessary to reach the objectives required by your chosen profile.

Step 3: Find your stock trading system, your rules
What kind of stocks will you be buying? When will you buy and sell them? Most important, why? Find out as much as you can about what is typical of your trading profile, and make yourself some reasonable rules that work with it. Try your system out in a stock simulator, such as Investopedia’s.

Step 4: Shop for your broker
Finding the right broker is a big step. It will determine the quality of the services, resources and advices you will have access to once you start trading stocks online. Some online brokers will offer completely raw trading services, with absolutely no advice and little customer service. This comes down to far cheaper than full-service brokerage but if you feel that you need some advice, shop accordingly. Also, while most brokers can take care of currency conversions and deal with a wide array of stock exchanges, make sure yours can do this as well (if there are particular stocks you wish to trade, ask them if they have access to that market – and what are the fees). Don’t hesitate to try out their customer service to gauge their reaction time, and if they have a free trial offer, why not try it out first?

Step 5: Contact your broker for your application
Be aware that there will likely be a delay before your trading account is operational. You will have a few forms and documents to fill out, online and offline, and perhaps have to send a deposit. Follow the broker’s instructions.

Step 6: Select your stocks and start trading!
In determining your trading profile and strategy, you pretty much narrowed that field down quite a bit. From there, you must now find the key pieces of information that are relevant to you and stay updated continuously. A few obvious choices, for most stock traders:

• The Wall Street Journal: a fantastic birthday gift to ask. Or try their free online edition.
• MarketWatch: the Wall Street Journal’s little brother can be found online, for free.
• The Motley Fool: The Motley Fool is famous for its newsletters and stock picks, and also has up to date market coverage as well as an active online stock trading community.

The list could go on and on… The web is filled with information, it will be up to you to filter the sources that are right for your strategy!

Step 7: Stay disciplined?
Alright, you knew that one, but it’s true! Follow your game plan and stay focused. Don’t make decisions based on emotions. Be patient. If you have a few thousand dollars in your account, it will be hard to not invest them right away, but remember that timing is critical. The real profit is not made when you sell, it is made when you buy.

1. New York Stock Exchange: $9.57 trillion in market value
The New York Stock Exchange (NYSE) is located on famous Wall Street in lower Manhattan, New York City, and has been around since 1792. Although it is a listed exchange with physical trading floors and rooms, all stocks on the NYSE can now be traded electronically, electronic transactions representing most of the trades performed. In October 2008, it was merged with the American Stock Exchange (AMEX), and is now the largest stock exchange in existence. It is open Monday through Friday from 9:30 to 16:00 Eastern Time, except on holidays.

2. Tokyo Stock Exchange: $3.10 trillion in market value
The TSE, or Tokyo Stock Exchange, was created in 1878. More than 2000 companies are listed on the TSE and its main indices are the TSE and the famous Nikkei 225. Most security transactions in Japan are done through the TSE, which operates entirely on electronic stock trading. It is open from 9:00 to 11:00 and from 12:30 to 15:30 (GMT + 9 hours).

3. NASDAQ Stock Exchange: $2.77 trillion in market value
The NASDAQ, or National Association of Securities Dealers Automated Quotations, is the largest virtual stock trading market in America. Unlike the NYSE, the young Nasdaq (founded in 1971) doesn’t have a history of trading floors and rooms to physically trade stocks. Stock trading is done entirely through an electronic network of dealers; it is an electronic screen-based stock market. It is open Monday through Friday from 9:30 to 16:00 Eastern Time (minus holidays) and offers pre-market and post-market trading sessions extending these hours from 7AM to 8PM, Eastern Time.

4. Euronext: $2.26 trillion in market value
Based in Paris and with branches across Europe, Euronext was born in 2000 from the merger of the Amsterdam Stock Exchange, Brussels Stock Exchange and Bourse de Paris. It subsequently went on to perform other mergers and share acquisitions, to today become the fourth largest stock exchange in the world. It merged in 2006 with the NYSE to create the NYSE Euronext corporation, which now oversees both exchanges. Its opening hours in Europe are from 9:00 to 17:30, local time to the branch in question.

5. London Stock Exchange: $2.20 trillion in market value
Founded in 1801, the London Stock Exchange (LSE) is located in London and lists over 3000 British and overseas companies. It has a number of indices, the most common being the FTSE 100 and FTSE 250. Opening hours are 08:00 to 16:30 on weekdays.

6. Shanghai Stock Exchange: $2.07 trillion in market value

7. Hong Kong Stock Exchange: $1.77 trillion in market value

8. Toronto Stock Exchange: $1.35 trillion in market value

9. Frankfurt Stock Exchange (Deutsche Börse): $1.13 trillion in market value

10. Madrid Stock Exchange: $1.08 trillion in market value

Other notable big stock trading markets are the Bombay Stock Exchange ($1.03 trillion), the National Stock Exchange of India ($968 million), the Sao Paulo Stock Exchange ($920 million), the Swiss Exchange ($854 million) and the Australian Securities Exchange ($839 million).

Stocks, by definition, entitle their owners to limited liability, limiting their responsibility to their initial investment in case the company suffers losses. If the company suffers a loss or has debts, the worst loss for the stock owner is reflected in the stock’s value and/or yielded dividends. The owner of the stock can not be held personally responsible and face legal procedures as a result of the company’s actions.

Not all company stocks can be traded on the stock markets. Most of the bigger company stocks can, though. These companies are called public, as they have made their shares available to the general audience. Such companies usually go public in order to raise funds to fuel growth.

Two types of stocks: common stock and preferred stock.
Common stock is by far the most popular stock type in online stock trading. It most often gives owners voting rights and dividends, and usually performs better than preferred stock.

Preferred stock, while usually yielding less performance and not allowing voting rights, generally provide owners with a slightly more secure investment: in case of liquidation, they have priority over common stock. They also have priority over dividends. Some preferred stock can be converted to common stock if such a feature is specified on their release.

Market capitalization
If a company has 10 million stocks issued that are each valued at $10 a piece, the product – 100 million dollars – would be called the market capitalization of that company. Market capitalization is a way to measure the weight of a company, its value on the market. The price of the stock is not. For instance, that fictitious company could have very well decided to issue 1 million stocks instead, at $100 a piece, and it would still be worth 100 million dollars.

Therefore, stock worth $200 each from company A is not necessarily better than stock worth $5 each from company B. Stock traders have to be careful not to think that lower priced stocks are necessarily a bargain!

Companies usually get listed on the stock exchange as a way to raise capital (see our next tutorial about what are stocks). If the company’s ideas and prospects sound good, investors may see an opportunity in owning part of that company. Buying stocks means buying part of a corporation. That company may strive, or it may sink.

Investors trade shares using brokers: professional entities accredited to perform trades on various markets. When buying or selling a stock, an investor traditionally fills an order and sends it to the broker, who then submits it to the relevant market. If you wish to buy common stock from Apple, for instance, the broker will relay the order to the Nasdaq, which is the market where Apple is traded.

Stocks are traded on various markets around the world, such as the New York Stock Exchange (NYSE), Toronto Stock Exchange (TSX) etc… Some stocks are sold on more than one market, and markets are not necessarily geographically distributed (the Nasdaq, for instance, lists both US and non-US companies). Markets can also be specialized in particular segments. The Nasdaq, for instance, is a trading market specialized in technology and growth companies.

When hearing of a drop of X% for the TSX, or Y% for the Nasdaq, people refer to the change in the indices of such markets. The indices represent the overall performance of the companies listed on the markets. In the case of the Nasdaq, the main index looked at in the news is the Nasdaq Composite – an index of all common stocks listed on the Nasdaq. It is value-weighted based on the capitalization of the more than 3,800 companies listed there. Various indices exist, for the Nasdaq and other markets, and are used to analyze the performance of various sectors and sub-sectors by compiling value-weighted data from relevant companies.

Owning stocks can obviously be lucrative for investors because if the circumstances are favorable, the confidence from investors towards that company can increase and push the stock price to rise. If it does, the investors can sell the stocks for a profit. Some companies also distribute periodic dividends to investors, a way to share the profits that have been made.

The stock market is a key instrument of wealth manipulation worldwide. The stock prices on various markets mainly represent the confidence that investors have in the companies. It is therefore not a perfect entity, but careful and well-informed decisions can yield great returns for investors.