ABstocks: Learn Stock Market

This is an example of a typical stock trade that you would buy and expect it to go up and sell it at a higher price (long trade).

We take Ford Motor Company stock as an example here. The stock is in US dollars and is listed in NYSE and the chart can be found on Google Finance here. Your brokerage account must have a US dollar account or if you are buying from Canadian dollar account or any other currency, it will have to convert using the rate of your brokerage. We don’t recommend purchasing with another currency other than the one the stock is listed since the conversion rates with the brokerage are outrageous usually, and you are also fighting with the currency changes every day that is another risk factor, but not much.

A snapshot of the stock can be seen below as of May 24 2011,  for a 6 months period:

 

We usually take 6 month period if we are looking to hold the stock not more than 6months, and before considering any stock we always research and read on the health of the company and past history to get an idea where it might be headed. Analyst’s and institute’s buy and sell rating are also good to read for any stock to get an idea how the company is doing.

Now back to the above chart, as you can see the price was dropped from ~$18 to $14-$16 range sharply. That is something that we would look into as why that is, if not significant we continue to consider this stock. The stock then has been fluctuating between $14-$16 for a while so it might be a good candidate for trading daily or monthly. We usually wait for it to go to the low side before purchasing not when it is high ie waiting for a bargain price. It will happen usually and try not to rush or chase the stock.

Now for a trade example, right now the price is $14.80 and we say we pickup 500 shares for $7400 total (500 x $14.80 = $7400) plus the commission for the broker that should be around $4.95 for Questrade or $9.99 for TD Waterhouse (this depends on the brokerage service you are using). Please see List of online brokerages and comparison of their commission and services for all the links. We put the order in and set a date we want the order to expire (usually same day or few days after). When the price and the quantity of the shares available matches your order, your order gets executed or filled. Note that you can only buy/sell during the time the market is open. That is 9:30am – 4:00pm EST for North American markets. You also have to have the $7400 available as cash or margin or together. You can see the fill or execution status on your brokerage interface. You can after a few minute see the order got filled.

Congratulation, you are now the owner of $500 shares of Ford Motor Company. This entitles you to dividends (if a company has one) and you have voting rights etc… if you want to vote in general meetings (not to worry about this now).

You are also paying interest if you are on margin (borrowing money) daily. This is something that you have to keep in mind.

 

Time to sell

Lets say the stock performance has been good and you want to make some profit or for whatever reason you have decided to sell your shares (this could be all 500 shares or partial ie. 200 shares only to sell). You go through the exact method as buying and put an order to sell the number of shares and the price you are willing to sell and put the order into the system including the expiry date (or same day). You can now wait for the conditions of your order to be met and the order gets executed. Note that you are also paying another commission (same as above depending on your brokerage rates obviously).

 

You have now completed a full buy and sell transaction of a company shares.