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A Beginners Guide To Trading Stock Online
The first thing you need to do if you are online, is check out online brokers such as TD Waterhouse or E-Trade. Opening an account is normally free, and once it is opened you can deposit money into your account so that you can trade.
What Type Of Broker?
The cheapest is an execution only broker. What this basically means is that you aren't given any advice on when to buy or sell the shares/trade. Their job is to provide a quote and fill the order.
What Is An Order?
All participants in the market want to do one of three things. They either want to buy, sell or hold. You only need a broker when you want to buy or sell. Holding the shares takes care of itself ( and is the least expensive while your stocks are going up in price ).
Online Trading Platforms
By having an account online, it allows you to buy or sell shares automatically ( i.e. without human intervention in the most part ). Once you place an order to buy or sell, you normally have a limited amount of time to accept or turn down the price offered.
How Are Prices Made Up?
Prices consist of a bid and offer, with the Mid price being the actual price of the share. Most stocks have one or more marketmakers that set the price for the stock so they can make money on the spread in return for making a market in that stock. For instance, you may have a stock priced at 136p with a 134p bid and 138p offer. This means the marketmaker will buy the stock off you for 134p and sell it to you for 138p.
Okay I Want To Place The Trade.
So in the example above you agree to buy at 138p and the deal goes through. Congratulations you now own shares in Company 'X'. If you pay the full offer price, it is also known as the 'touch' price. One thing to check is the normal market size for the shares you wish to buy. If the amount you require is above NMS, then the marketmakers can choose a different price to the 'screen price'
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