The Basics of Share Trading

How and where should one start on share trading? Just like any other profession, you should learn first the basics of how share trading works. Some people starts trading in Australian share market with about $1000-2000, but the you can also start with as little as $500 including brokerage costs. So before you start the basics of share trading, you should evaluate yourself first with certain questions such as: What do you want to gain or achieve in share trading? Into what level of profit do you expect? And do you think this level of profit is reasonable? How much amount of money are you ready to take chance in your share trading business? Now if you can answer these questions positively, you can have a good start on share trading.

The amount of time you are willingly to spend in the market is one of the important fundamental on share trading principle. Consider other weight factors such as opportunity cost and other interest repayment costs. Keep in mind that this period of time will alter considerably from person to person and there's no one correct answer. The best period of time to select will fit your trading personality. Mostly, trading stocks involves a short time frame but there are trading systems which entail a longer period of time. Keep in mind that you don't transform your trading into investment portfolio, wherein you have let a trade turn wrong and you have not followed your planned exit from your trading plan.

Your share trading operation can also attract tax implications. If your market trading activities corresponds to a particular criteria set out by the taxation department, your professional share trading could be seen as a type of business. You should seek professional advise then from your accountant regarding tax implications and your share trading.

Liquidity should be kept in mind when you are trading. It can definitely use it when you trade so you can easily enter and exit trades as you desire, or as close to your bid or required price. Remember that most of the stocks on the share market are liquid but many are also illiquid. Usually, liquid stocs are in the top 10 to 200 companies of the stockmarket. In Australia, these companies would probably be listed on the ASX100 and ASX200

Lastly, you should accept the fact that you are the one alone is responsible for your financial prospective and share trading. You are the one controlling the amount of chance in a trade. Any losses must be accounted and must as well have a trading strategy which you should strictly follow. The share market won't tell you how much you lose. You are the only one who can decide how much money you are willing to lose by presetting your stop loss and the amount of risk you are ready to place in each and every trade you are going to perform. There are many formulas and theories that exists for differing trading needs, but the most common rule traders use is the simple rule called "The 2 Percent Rule".

Option Trading Explained

What is Option Trading?

Option trading can be quite exciting and profitable. If you have never done it before, let me explain how simple it can be.

Buying or selling an Option is buying or selling the "right" to trade a stock. Your are never obligated. You purchase an option to give you the right to do so if you desired.

There are several reasons why one would trade options instead of stocks. I can't go into them all here but a few reasons are:

• You can use leverage to control more shares with less money.
• To hedge a current profitable position.
• To limit loss while allowing for unlimited gain.
  

Before you can buy or sell an Option, you must decide on its terms. You must know:

• The underlying stock symbol (the actual stock you have a right to).
• The price you wish to buy or sell the stock at.
• The deadline you want before the Option expires.
  

There are two types of Options, Calls and Puts. A Call gives you the right to buy the stock. A Put gives you the right to sell a stock. You would usually buy Calls when the market is going up and buy Puts when the market goes down.

Now here is where it gets confusing (if you are not already). In addition to buying Calls and Puts, you can sell Calls and Puts. Selling a Call is nothing more than selling to another investor the right to buy stock from you (perfect if you were going to sell your stock anyway). Selling a Put is giving another investor the right to sell you stock at a specified price in the future (great if you like to buy stock below current price).

These options are traded the same way as stock. You can buy to open and sell to close, or in down markets, sell to open and buy to close.

By Will Boyett