When you are ready to break into online stock market trading you will come across a lot of technical terms which will almost certainly confuse you at first.
So we would like to explain to you what some of these terms mean.
The first things that you need to know are what the bid price is and what the ask price is.
When you are trading stocks you will be doing a lot of buying and a lot of selling. It is very different method than the old way where you simply bought some shares in a company and hoped that the business would get better and that the price of the shares would go up in value normally over a considerable period of time.
When you are trading you are going to be doing the same thing but on a much more regular basis. Some people will decide that they only want to be in a trade for a few hours or even minutes.
So the ask price is the one that you want to take notice of when you want to want to buy some extra stocks to build up your portfolio of investments. This is also known as the offer price. The bid price is the one to look at when you want to sell some.
It helped me to think of it as similar to a bricks and mortar auction. The auctioneer will be offering items for sale. He will normally start off by asking whether anyone will give $100 for it. So if I want to buy that thing, that is the price that I need to know.
A customer at the auction may say “I bid $50″. That is the price that the auctioneer needs to know as he is the one selling.
In the auction room the final bid price and offer price are normally the same. I mean that the auctioneer sells for $200 which is what the customer pays. There is then normally an amount deducted before the money is handed over to the person who has sold the item. This money is the fee for the auction business.
It works slightly differently in stock exchange trading. The prices that you will see on the computer screen will already reflect that charge. So as a typical example, the bid price might be $10.00 a share whilst the ask price might be $10.50.
Effectively this means that if I buy 100 shares right now it would cost me $1050. If I were to sell them back right away, I would sell them for $1000. I would lose $50 on the transaction which is equivalent to the auctioneer’s fee.
I am just going to complicate this slightly by saying that, unlike the old trading through a stockbroker, you can actually sell some shares before you buy them.
The internet has changed the face of trading and this is one of the main areas. What you are doing is saying that the value of the company is about to go down. You sell some shares in the business and them buy them back when the value drops.
You will see that you can make money from a falling stock value as well as a rising one. However you need to fully understand the stock trading technical terms of bid, offer and ask.
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