What are Stocks?
Stocks are securities that represent partial ownership of a company. People who own a company’s stock are called shareholders. They are entitled to acquire part of the earnings of a corporation. Shareholders have limited liability, so if a corporation goes bankrupt, the value of their shares is the only asset to lose.
Corporations issue stocks for fundraising to develop and operate their businesses. The fund can be utilised for the research and development, hiring new workers, marketing and so on.
Stocks are one of the most profitable asset classes in the long-run compare to bonds and cash. It is also a principal instrument to trade and include in a portfolio for asset allocation.
Why Should We Trade Stocks?
Trading and investing stocks offer multiple benefits for people.
PRO
Benefit from a growing economy
As the economy grows, businesses can earn more revenue. It means they can hire more people and create more sales. The income a company makes reflects the price of the stock, and shareholders can take advantage of it.
Hedging Inflation
Goods and services that people consume price increases gradually due to inflation. Since the revenue that corporations make has already included the inflation rate, the stocks are one of the best ways to avoid the risk of inflation. In the long-term, stocks as an asset class earned 10% per year, and it is better than just holding cash which devalues every single year.
Multiple ways to earn money
Other than gain profit from the increment of the stock prices, we can also earn a dividend. Dividend yield may vary among the sectors and corporations, and dividend investment is a famous way to invest in stocks.
Easy to access
Opening an online broker is super easy nowadays. Numerous brokers are user-friendly and 100% digital to register an account. Plus, there are even brokers with zero commission!
Abundant Liquidity
Stocks traded on stock exchanges are usually has enough liquidity for retail traders to buy and sell whenever you want. Except for penny stocks with little volume, it is easy to enter and exit at the favourable price.
CON
High Competition
The market participants of the stock markets are not only retail investors, but also investment banks and financial institutions with lots of resources like experts, equipment and capital.
Nowadays, hedge funds utilise their in-house developed algorithm to trade without emotions and data. It is engineered by top-class quants and risk managers.
Requires lots of knowledge
You must research each company that you want to trade or invest in. It requires you to have the ability to read through financial statements and annual reports as well as the company’s up-to-date news.
Other than these, you should know what your strategy and tactic you want to approach the market with evident data showing that it is valid.
Risks
Same as any financial instruments, the stocks can be very, very volatile. If the company goes bankrupt, the shares can worth nothing. It is the reason why money management is crucial to surviving.
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What to trade in Stocks?
We can invest or trade multinational companies’ stock like Apple, Amazon, Facebook, Netflix and Tesla. Isn’t it cool to own a portion of these companies with just a few clicks?
Or you can trade other stocks that you are familiar with! There are mainly 12 sectors in the stock market. We can classify a company in multiple sectors base on its business model and income stream.
For example, McDonald can be classified as consumer discretionary but also real estate company as they own all of those stores that they operate!
Here are representative companies in each sector :
| Sectors | Corporations |
| Energy | Exxon, Shell, and Kinder Morgan |
| Basic Materials | DowDuPont, Ecolab, Valvoline, Scotts Miracle-Gro, and Sherwin-Williams. |
| Industrials | Boeing, 3M, Honeywell, UPS, Delta, Lockheed Martin, Deere, and Caterpillar |
| Consumer Discretionary | Amazon, Home Depot, Ford, Wynn, Starbucks, Target, and Chipotle |
| Consumer Staples | Walmart, Coca-Cola, Procter and Gamble, Costco, and Kraft Heinz |
| Healthcare | Johnson and Johnson, Pfizer, Merck, Medtronic, and UnitedHealth |
| Finance | JPMorgan, Bank of America, Wells Fargo, U.S. Bank, Goldman Sachs |
| Information Technology | Microsoft, Intel, Visa, MasterCard, Adobe, Salesforce, and Square |
| Communication | Verizon, AT&T, T-Mobile, Sprint, Comcast, Charter, Netflix, Facebook, and Google. |
| Utilities | Duke Energy, NextEra, PG&E, Xcel, and NRG. |
| Real Estate | Simon Property Group, AvalonBay Communities and Aimco |
When Can We Trade Stocks?
The trading hours differ from the region of the stock market. This is the list of locations, local time and GMT standard table to check which area do you belong.
| LOCATION | local time | GMT |
|---|---|---|
| New Zealand | 10am – 4.45pm | 10 pm – 5 am |
| Australia | 10 am – 4 pm | 12 am – 6 am |
| Tokyo | 9 am – 3 pm | 12 am – 6 am |
| Shanghai | 9.30 am – 3 pm | 1.30 am – 7 am |
| Shenzhen | 9.30 am – 3 pm | 1.30 am – 7 am |
| Hong Kong | 9.30 am – 4 pm | 1.30 am – 8 am |
| Bombay | 9.15am – 3.30pm | 3.45 am – 10 am |
| Tehran | 9 am – 12.30 pm | 5.30 am – 9 am |
| Frankfurt | 8 am – 8 pm | 7 am – 7 pm |
| Amsterdam | 9am – 5.40pm | 8 am – 4.40 pm |
| Paris | 9am – 5:30pm | 8 am – 4.30 pm |
| London | 8 am – 4.30 pm | 8 am – 4.30 pm |
| Lisbon | 8 am – 4.30 pm | 8 am – 4.30 pm |
| Brazil | 10am – 5.30pm | 1pm – 8.30pm |
| Toronto | 9.30 am – 4 pm | 2.30pm – 9pm |
| New York | 9.30 am – 4 pm | 2.30pm – 9pm |
Who is Trading in the Stocks market?
Market participants are retail investors, institutional investors, corporations (own shares) and Robo-Advisors. Major players are institutional investors which include pension funds, insurance companies, mutual funds, index funds, ETFs, hedge funds, banks and more.
| Market Participants | Description |
| Pension Funds | They are funds which provide retirement income for workers. Largest 300 pension funds hold about $6 Trillion in assets and are the major players of the stock market. |
| Insurance Companies | Insurance companies use the fund collected from insurance customers and invest their fund in the stock, bond, commodities and other markets as well. |
| Mutual Funds | A mutual fund is a company the collects money from the public and invests on assets. It enables investors to invest in portfolios that an individual would not be able to afford alone. |
| Index Funds / ETFs | Index funds or ETFs are a kind of funds that tracks an index. This can be S&P500 or Daw Jones. It buys companies included in the index base on various factors and it is also known as passive funds. |
| Hedge Funds | Hedge Funds are an investment company that invests customers money to outperform the market or avoid risks against unforeseen market changes. Well-known hedge funds are Goldman Sachs, JP Morgan and Renaissance Technology. |
| Banks | Custody banks hold assets like stocks and bonds for investors and brokers. Meanwhile, most of the revenue comes from selling financial products and lending. Banks are also a large player in the market which caused the financial crisis in 2009. |
| Robo Advisors | Robo-Advisors are increasing growing players within the market. These are the IT companies that develop algorithms and systems for automated portfolio rebalancing and trading via pre-setted logics. |
| Corporations | Corporations hold their own company share for the power to make decisions and operate. Buy-backs are also done when the company is doing great or undervalued (like Berkshire Hathaway). |
| Retail Investors | Retail investors are individual investors who trade securities or funds. They trade through online brokerage firms or other types of investment accounts. The retail investment market is enormous as it includes retirement account, online trading and Robo-advisors. |
How to Trade Stocks?
1.Find a broker that is suitable for you!
2.Deposit your the fund.
3.Analyse the market and the company.
4.Set-up your strategy and tactic.
5.Place an order at the price you want to buy.
6.Sell the stocks to take profit!
DONE!
What are the ways to analyse the market?
Technical Analysis
Chartists are people who believe that the price of a stock reflects all the value and news. Therefore, analysing the price movement using technical analysis would increase the probability for you to gain profit.
Fundamental analaysis
Fundamental analysis is a method to measure a company’s intrinsic value by considering economic and financial factors. Analysts study the factors that can affect the securities value like economic status and industrial conditions to microeconomic factors like the trade war and pandemic.
Quantitative analysis
Quantitative analysis is a method to approach a stock with the combination of technical and fundamental analysis but with numbers. For example, we can filter the momentum of recent 1,3,6,12 months of a company that performed well. Then filter out using PER, PBR, PCR, PSR and G/PA. Rank them from top 1 to top 20 and enter position 5% each. And rebalance once a month or once a year depending on your logic and strategy.
How are Stocks Traded?
In stocks exchange at a given amount of time. When you buy a stock in the market, there is someone who is selling the shares. This process is called ‘Changing Hands’.The counterparty can be other retail investors or institutions.
Regulators like SEC (security exchange commission) act as a regulator to prevent any market manipulation and fraudulent within the market. There is cleaning house like ICE, CME, NASDAQ Exchanges. They make sure things are operating safe and sound.
Moreover, custodians and brokers help you to open an account and start trading. The very first step to trade stocks is to find a reliable broker!
Where Can I Learn About Stocks Trading?
Books
Choose the way you want to approach and start with the best selling books that are verified by multiple readers!=.
Videos
GO through youtube videos which have transparent tracking record of investment with a sustainable strategy.
News
Watch CNBC, Bloomberg and another broadcast that offers up to date news.
Reports
Read through the reports from the reliable analysts! These reports often time offer meaningful insights.
Financial Statements
Study the balance sheet of the companies and go through the webpages of the company you would like to trade.
Websites
There are websites(smart allocate and seek alpha) that offer an incredible and data-driven portfolio with a transparent database. All you need to do is go through and learn them step by step.
Trading Strategies
Overnight Strategy
Many studies have shown that the price of stocks increases in the bigginning of the market, quite in the noon and drops in the afternoon. This is also named intraday anomaly.
The overnight strategy is a strategy where you enter a position before the market ends and sell at tomorrow’s opening price. Since you are holding a stock for one night, it is named overnight strategy. It is been performing quite well for many indexes.
Trend-following strategy
The trend-following strategy is a strategy that trades according to the momentum and trend of the market. Trend traders enter a long position when the market trends upward and sells when it trends downward. This way of the method is designed to take advantage of uptrends where the price tends to make new highs. It can be done by using technical indicators like moving averages, momentum indicators like RSI and trendlines with chart patterns.
Frequently Asked Questions
Can we be rich trading stocks?
The most important thing is the strategy and approach to the market. Market-timing is one of the hardest things you can do. Frankly speaking, asset allocation would be suitable for 90% of retail investors. So that you are not trying to beat the market, but follow the market.
Do you prefer forex or crypto or stocks?
We invest all of those asset classes using different approaches. For forex trading, we use EA that is using intraday anomaly and overnight strategy. For crypto, we use automated bot via volatility breakthrough strategy, and for stocks, we use factors to diversify our portfolio. The most important thing is to know how each asset behaves and know the exact method and risks.
Are stocks safe to trade?
Yes, it is well regulated and managed by various institutions. However, it is still volatile, and there is a possibility of fraudulent and manipulation of stock prices from corporations.