10 Great Ways to Learn Stock Trading ⑤

Trading Strategies
There are many stocks for trading stocks. The most common strategy is to buy and hold. You buy shares of stock, then hold them for years and years. The complete trading strategy would be day trading, which is when you buy shares then sell them the same day before the market trading (for more on day trading, see my day trading guide).

Each strategy has its advantages and difficulties. For example, day trading can be useful since you are trading tired. Furrations, since your trades are less than a year in duration, any chances are subject to capital gains benefits.

To keep costs as low as possible, famous investors like John Bogle and Warren Buffett bought and held the entire stock market. Known as passive investing, it is a buy and hold strategy where you buy an entire market index, considering the S&P 500, as a single mutual fund or exchange traded fund (ETF). By buying an entire index, you are properly diversified (have shares in ~500 large companies, not just one), which affects your risk long term. In fact, John Bogle is credited with creating the first index fund.

Three Other Common Grounds You May Hear Traders Refer to Include Momentum Trading (Buying Shares of Very Fast Growing Companies and Selling Them for a Profit Before They Hear Peak in price), swing trading (using technical analysis to identify a trading range, and then buying and selling shares as the stock trades within that range), and penny stock trading (buying Shares of very small companies stocks traded for less than $1 a share).

ETFs and Mutual Funds
By this point, we should know what a stock is, so let's break down ETFs and mutual funds. ETFs (exchange securities funds) and mutual funds are similar in that they both purchased a collection, or “purchased,” of individual stocks or bonds.

Take for example the S&P 500 market index, which is selling of 505 companies. Buying shares in 505 different companies would be very interested to do. Thanks to Mutual Funds and ETFs, We Can Simply Buy One Single Security That Relevant Shares in All 505 Companies. The largest S&P 500 mutual fund is the Vanguard 500 Index Fund Admiral Shares (VFIAX) and the largest S&P 500 ETF is the State Street Global Advisors SPDR S&P 500 ETF (SPY).

By buying an ETF or mutual fund, your portfolio is better diversified than just owning shares of one or two stocks; thus, you are taking on less risk overall. This is the primary advantage of buying ETFs and mutual funds over trading individual shares.

The main difference between ETFs and mutual funds is in how they trade. ETFs trade like stocks, which means you can buy and sell them buy and sell them on the day and they sell in price markets on supply and demand. Contrasting, mutual funds are leaving each day after the market breaking, so everyone is paying the same price. Also, mutual funds require a higher minimum investment than ETFs.