Do You Know the Rules of the Game?
Dear Penny Stock Millionaire,
This whole trading lifestyle can seem very cool, a little surreal… and overwhelming all at once. Especially when you realize how much there is to learn, right?
Even my most successful students started their journeys knowing nothing about trading. Then they began learning, and everything changed. Once you start to build knowledge it opens your eyes to the world of possibilities.
Let’s get started with some stock market basics.
Breaking Down the Basics
The stock market refers to a secondary market where buyers and sellers come together to deal in company shares. In a secondary market, you don’t buy shares from the company. Instead, you buy from an existing owner of the stock.
A stock exchange is the basic trading facility or platform. In the case of the NYSE, traders still execute trades on the trading floor. The Nasdaq is different in that it’s an electronic exchange. But in both cases, the exchange is used to buy or sell company stocks and bonds.
Traders and investors buy and sell stocks listed on the exchange. Stock brokers make this possible by executing trade orders.
Now you know what the stock market is … but what about playing the market?
To Play or Not to Play That is the Question
Some people contact me and throw that ‘playing the market’ phrase around like this is a big game. I suppose you could look at it that way, but prepare to lose your ass if you don’t take this ‘game’ seriously.
Others send tweets or emails oozing with apprehension and fear. They seem outright scared to play.
Here’s the thing: Whether you’re on the side of fear or you think it’s all a game … it’s all about perspective.
The point I’m trying to make is this: You can learn to trade as long as you start at the beginning with stock market basics and build a base of knowledge. It’s exactly what I did back in the day.
Now it’s your turn. Let’s dive in …
What Are The Stock Market Basics?
First things first. You have to understand stock market basics concepts. Without foundational knowledge, you’re toast.
When you buy shares of stock you’re buying into the company. In other words, at some point, the company decides to raise capital to invest in company growth. It may be for research and development, marketing, or even machinery, but the capital is meant to bring return on the investment.
To raise the capital, the company creates shares and sells them in an initial public offering. Then those shares are traded on the ‘stock market.’ It could be the Nasdaq, the NYSE or the OTCBB (which is considered ‘off exchange’).
So, for example: Company X sells shares. Those shares are now available to buy or sell on an exchange.
Next, you need a stock broker. Your broker executes your trades. When you instruct them to buy, they’ll buy at the best price available, depending on your instructions. Brokers must meet certain professional standards set by the Financial Services Regulatory Authority (FINRA).
What else do you need?
A brokerage account. Your broker will help you create one. Or, if you use an online brokerage and trading platform, you create it, then transfer money into it, and then you’re off!
But hold on. There are some other things you need to know right away …
Say you put in an order to buy shares. That’s called a bid. Somebody else owns the stock already. They may be asking for a specific price. That’s called the ask. A buyer makes a bid; the seller asks for a price.
The gap between ask and bid is the spread. The bigger the spread, the lower the number of shares that will trade. The closer the spread, the easier it is to buy and sell … because there are sellers and there are buyers and they aren’t too far apart. Cool so far?
Who Can Be a Stock Investor?
It used to be difficult for the average person to be a stock trader. Today, anyone with a computer, high-speed internet connection, a brokerage account, and a trading platform can do it.
But before you dive into getting a bunch of slick trading gear, you’ll need to be prepared with a bit more knowledge.
The Bottom Line
There’s this famous quote by Abraham Lincoln. It goes like this: “Give me six hours to chop down a tree and I will spend the first four sharpening the axe.”
You need to be prepared for challenges when you start trading. There are up days and down days. You’ll have wins and losses; sometimes both on the same day. You’ll likely learn some hard lessons.
The best way to ease into a trading career with less pain? Preparation. Like Lincoln said, sharpen your axe. Study, learn, practice.
Over the next two days, I’ll teach you all about market basics. Some other teachers won’t tell you some of these things (at least not until you’ve paid them big bucks for their latest course), but I’m going to tell you up front because I want you to start preparing right away.
Editor, Penny Stock Millionaires