How to Trade Stocks

gautamsathish · #1 3rd May 2008, 02:50 PM

Understanding how the economy works isn’t the only fundamental analysis tools that are important while trading stocks. You also need to read financial statements to understand the financial status of the companies you want to buy. A Company’s income statements on the other hand give you a look at the results of the most recent period and provide a basis for comparison with prior years and periods. You can use these statements to look at whether revenues are growing, and if they are by what percentage. You also can see how much profit the company is keeping from the revenue it generates.

The cash flow statement shows you how efficiently a company is using its cash and whether it’s having problems meeting its current obligations. The balance sheet gives you a snapshot of a company’s assets and liabilities and stockholders equity.

Buying a share of stock can be as easy as calling a broker and saying that you want to buy such and such a stock, but you can place an order in a number of other ways that give you better protections. Most orders are placed as day orders, but you can choose to place them as good till cancelled orders. The four basic type of orders you can place are market orders, limit orders, stop orders and stop-limit orders.

Understanding the language and using it to protect your assets and the way you trade is critical to your success as a trader. It is necessary to know the nuances of placing orders so you don’t make a potentially costly mistake by placing a market order when you intended to place a limit order. Putting a stop-limit order in place may sound like the safest way to go; however, doing so may not help you in a rapidly changing market.