Getting started with Investing

Investing is not so hard, but making money out of your investments is. This page provides a very brief summary on how to get started with investing in the stock market. This page is meant for beginners who have never invested in stocks. If you are interested in learning more about stocks, check out books below:

Some Great Books on Stock Trading


What is a "stock"?

Stock is used to refer to a share of a publicly traded company. You can buy or sell these shares in a stock exchange. Most people, however, use stock brokers to trade stocks. Even if you use stock brokers, you can only trade when the stock market is open (Monday - Friday 9:30 AM - 4PM EST)


What is a "ticker"?

Company stocks are identified by alphanumeric characters, that is commonly referred to as "ticker" or "symbol". Below are examples of some tickers for some popular companies.
WMT - Walmart stores
GOOG - Google Inc
CVX - Chevron Corp

All stocks have price associated with them. This is the price at which one unit of the stock is currently traded in the stock market. "Stock quote" is another term used to refer to stock price. To find quotes, you can use any site such as Yahoo Finance, provide the ticker symbol and get real-time quote. Company's stock price is determined by its performance. If a company performs well, announces good earnings, its stock price goes up. If it does not perform well, its price goes down.


What are the different positions?

There are four different actions you can take on a particular stock.

  1. Buy - You can buy a stock. Eg. Buy 5 units of WMT.
  2. Sell - If you own a stock, you can sell them. Eg. Sell 5 units of WMT.
  3. Short - "Shorting" means selling stocks that you do not own. When you short a stock, your broker lends you the stocks to sell. You will have to return the stocks back to your broker by "covering" them, but there is usually no timeframe by which you have to return.
  4. Cover - "Covering" means buying back the stocks from market and returning them back to your broker.

Points to remember:

  • You cannot sell until you have bought a stock.
  • You cannot cover until you have short a stock.
  • Buy and Short will create a new portfolio entry. It will open your position. You enter trade by either buying or shorting.
  • Sell or Cover will remove your portfolio entry. It will close your position. You exit trade by either selling or covering.

How to make money by trading stocks?

You make money from the price change in stocks. You can profit from move in stock price in either direction.

Profiting from an upward price move:
If you think a company's stock price will go up in the future, then you buy that stock and sell it later at a higher price.
Example:

BUY 50 units of GOOG at $100 each: Total cost = $5,000
Lets say the price of GOOG increases by $25
SELL 50 units of GOOG at $125 each : Total revenue = $6,250
Total Profit = $6,250 - $5,000 = $1,250

Profiting from a downward price move:
If you think that a company's stock price will go down in the future, then you short the stock and cover it at a lower price in the future.
Example:

SHORT 50 units of GOOG at $100 each: Total revenue = $5,000
Lets say the price of GOOG decreases by $25
COVER 50 units of GOOG at $75 each: Total cost = $3,750
Total Profit = $5,000 - $3,750 = $1,250


Where does Investfly fit in?

Investfly acts as your virtual stock broker. You can buy and sell stocks at Investfly with virtual money just as you would in a real market via real stock broker with your real money. Investfly provides convenient platform for you to practice in trading and evaluate your investment strategies. It also provides many other services for advanced users. Remember that investing is not a game. You will need a concrete and well-tested portfolio before you invest in the stock market. Think of Investfly as a laboratory where you experiment with ideas and formulate your portfolio. Once you are comfortable trading, you should open an account with recommended stock broker and start making real money.