Stock Basics Concepts
Learning to trade the market is much easier for beginners when beginners begin by learning the basics. This way the other concepts become much easier to learn because the new trader will have already learnt about the basic ideas before proceeding to the other concepts.
The basics that traders should learn first before starting trading are:
What's Indices?
Indices is the simultaneous buying and selling of one financial instrument for another. Traders buy & sell for speculation purpose and for the purpose of trying to make a profit. Traders will buy indices that they think will appreciate in value and sell indices that they think will depreciate in value.
In traders buy indices instruments when they become undervalued and sell instruments when they become overvalued. This is the basic concept of trading indices, as a beginner if you want to become successful when trading you must learn to buy undervalued indices instruments & sell overvalued indices instruments. Many traders miss this concept and do the exact opposite buying overvalued indices instruments because that is when these instruments seem to be moving up and up and they sell undervalued indices instruments because these instruments seem as if they will continue to move lower.
Just like in stock market successful trader buy stocks when the price is low & sell stocks when the price is high. This is the same concept which traders should follow when trading indices.
What's Stock Indices?
Indices trading is the simultaneous exchange of one financial instrument for another, for this reason indices is traded in symbols known as indices instruments.
What's a Quote?
Because indices instrument is traded in symbols, the price at which these instruments are exchange is determined by the quote.
Stock Indices is quoted in the format of decimal places.
What's a Pip?
Stock indices is quoted in the format of decimal places. Second last decimal point represents a Pip which is the smallest movement used to calculate profit & loss in market moves.
Pip means Price Interest Point: it's a one point move in the quote.
What's a Lot?
Indices is traded in units known as lots. There is also the Mini lot which is made up of fractions of the standard lots and the Micro lots which are fractions of the trading mini lots.
What's Leverage?
Because not many traders can afford to trade standard lots which require a lot of money to trade, there's trading leverage in Indices which means that traders can borrow money and use the borrowed money to make trades with. For example leverage of 100:1 means that a trader with capital of $10,000 can borrow up to 100 times using the 100:1 leverage option & therefore after borrowing using this leverage the trader will now have a total of $10,000 multiplied by 100, which means one will have total of $1,000,000. This leverage is what makes accessible to retail traders because retail stock traders can begin with little capital of their own & use leverage to borrow the rest of funds required for trading. Money that the trader deposits is referred to as a trader’s margin & a trader can continue borrowing money using this leverage option as long as they have the required margin in their account. This is why traders must have the required account balance in their account to open the trade transactions they want to.
What's Margin?
Margin is the particular amount of money that a trader is required to put aside in order to continue holding an open trading leveraged trade. Margin can also be explained as the deposit a trader is required to keep so as to maintain his open positions. This margin is a percent of trading account equity that has to be set aside and allocated as a margin deposit for the open positions that are held by a trader.
