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X. Equities Basics

Equities we will just consider as buying or selling a specific ticker on the stock exchange. Equities are how most people trade on the stock exchange as it is one of the most basic and well known things to trade. When you buy a stock you are expecting it to go up the future. When you sell a stock, you are expecting it to go down in the future. I recommend this as a strategy to encompass for most beginners as it is easier to follow and you don’t have to deal with different product specific variations.

  • Pricing- A stock price is just the price it would cost to own or sell 1 share of the stock

  • Buy- buying 1 share of the stock gives you ownership of the stock and is a signal you are going long

    • Profit- would be the X price you bought the share at minus the X price you sell minus the transaction cost

  • Sell- means you are selling 1 share of that stock at that price and is a signal you are going short

    • Profit- would be the X price you sold at minus the X price you bought back at minus the transaction cost

  • Quantity- is the number of shares you wish to buy or sell

  • Buy/Sell Order- is the order you give the broker that gives the price you are willing to buy/sell at along with the Qty

  • Transaction Qty- is the price you pay the platform/broker to use the system and for their transcation

    • You usually have to pay this on both sides of the leg i.e both when you buy and sell

    • Is usually a flat fee and independent of how many shares you trade

  • Short Selling- this is when you sell a stock, it has a little more risk and can have liquidity issues

  • Liquidity/Volume- is the amount of the stock that is trading at a single time

  • Bid/Ask Spread- the variance between what a stock is bid at (buy) or sold at (ask)

    • The more liquidity in a stock usually results in a smaller bid/ask spread

    • You will incur this spread as a cost for the market making fee

  • Market Maker- a middleman that takes a fee as a result of providing liquidity to the market

  • Average Cost- a strategy where you keep buying a stock over time and try to get a weighted avg target price on your buys

Those are the basics one should know going into trading equities. You always can go with the Warren Buffet old adage of “buy low and sell high”. This is obviously easier said than done but is the general concept of how you should get into equities. You can take a long term approach on investing for equities or do micro trades on it. The main thing is even if you are loading up over time and selling off smaller pieces at pricing points, you want your average buy to be greater than your average sell. If you do that, you’re on your way to becoming a profitable trader. As always, feel free to message me with any comments or questions. This is a beginner guide and look at my intermediate guide, videos, or blogs to gain further insight into how to trade this product .

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