Your Questions About Paper Trading Stocks

Jenny asks…

How do I go about buying stocks? And do I have to invest anything after I buy them?

I have always been interested in buying and selling stocks but I don’t know anything about it, once you buy stocks do you have to invest? If so how much?

John answers:

Buying Stock is like putting money in a bank account…you actually own the stock that you buy however. Unless you have a certificate of ownership, the ownership is a paper record indicating how many share you own and what you paid and when. No other investment is required.

You can own the stock as long as you want. It increases in value over time. Some companies do not however; they go bankrupt and you lose the value. If you choose wisely, that is not a major problem.

When you sell it, you sell the number of shares you bought for the current price per share.

Let say you buy Hewlett-Packard Stock today for the $41.15 per share. If you have $4115, you could theoretically buy 100 shares of it. [100 x $41.15 = $4115]. If and when the stock rises to $50.00 per share, you could sell the 100 shares for $5000 total. You have made money; almost $900.

Now I said theoretically, because you need a broker or agent to buy and sell the stock. They may charge $10, $50 or $100 to do this for example. They will also charge for the sale of the stock. That will come out of your purchase money and later from your sale.

Now the stock MAY go down in price too. There are no guarantees. Some people trade day to day to gain money as stocks rise, and they hold the losers until they make money. That is the art (or some call it risk) of stock trading. If you can invest the money over a long period, say 20 years, you usually gain on a conservative company.

Most advisors would tell the novice investor to buy conservative stocks that will likely grow over time.

You also have the option to put the money in a pool with others and have “experts” invest it. Such mutual funds will do well or not depending on their investments.

Donna asks…

What is the distinction between capital and financial capital in terms of stocks?

Economists consider stock as capital only when it is first offered for sale. After that it is considered financial capital. Why the distinction?

John answers:

The distinction is that the company only gets the proceeds from the sale of stock only when it is initially issued and first sold. Capital in this sense means a company’s assets, such as financial instruments, equipment, buildings, factories, machinery, etc. After the initial sale, the stock is no longer an asset of the company.

When stock is traded on a stock market the company that issued the stock does not receive any of the proceeds. The owner of the stock that sold it receives the proceeds. It comes down to a difference in who receives the benefit of the stock. Since economists are looking at the value of the corporate sector, then once a company no longer receives any benefits from the stock, then it is no longer considered capital.

Stock is a form of financial capital, as it abstractly represents the value of something. When you have paper that is generally recognized as representing the value of an asset and is accepted as that underlying asset, then you have financial capital. As it is a financial instrument, which is a type of capital, it is part of the financial capital of a business if owned by a business – just like cash is considered financial capital.

Donald asks…

How do stocks/the stock market work?

I need a little help understanding the stock market for a school project.

John answers:

Some one has started or owns a company outright. As a way to do bigger and better things or just to share their business with others, they take the company public. As Facebook found out recently, if you get a certain number of investors without going public, you can be forced to go public.

Once you are going to go public and sell your stock on an exchange, unlike a private company, you have to make your information open to everyone including your competitors. You must send in reports on a quarterly and an annual basis. Unlike your Annual Report that can be a PR piece for your investors, and often is, your reports to the Security and Exchange Commission must tell the truth and the whole truth. As long as you are telling the truth there, you are pretty safe.

Whatever percentage of the company is being sold, is divided into a number of shares. Some of these shares go to the principals of the company. Some shares may go to someone’s relatives and kids. In some cases like Col. Sanders of Fried Chicken fame, he refused the shares and his secretary took them. She died a millionaire; he did not.

Workers and officers are paid in part in shares. This can be a good thing or a bad thing. The idea is to have people motivated by having skin in the game, but to a large extent, luck pays a big part in it too.

You go public at a certain price. The expectation is that when the stock opens lots of people will want in and the stock will go higher. Some people become rich when that happens. Other people may only become wealthy later if the stock does well. Keep in mind that it is not guaranteed that the stock will do well.

The stock trades all hours the exchange is open and because everything is global now, there will be after hours trades around the world. Stocks can be trading at one price in New York and then after the exchange there closes, something happens that makes the price of the stock change a lot.

You can use Yahoo Finance and look up charts to see how they go up and down. The idea is to buy low and sell high, but that is harder to do than it sounds. The price of everything is always changing and people have different ideas about when to buy. Some buy every month of so, a certain amount so that as the price goes up they are buying less of the stock, and when the price goes down they are buying more of the stock. This is called dollar price averaging. Other people do not believe in doing so that way.

I hope this tells you what you want to know. There is a lot of other stuff to talk about, but I have to stop somewhere. You might look up options and hedging. One way of learning more about the market is to paper trade. That is, pretend you are buying a stock and write down the price of a certain day. On the same day in the following month, see if you have made or lost money.

Charles asks…

What do you need to do in order to get stock in something?

Where do you get them from? What are some good stocks that are good for a teenager to have untill they are sixteen, (they are fourteen now) when they will sell it to get a new car? How many stocks should one buy?

Thank you for answering! It is much appreciated.

John answers:

Investigate the different investments you have available to you. Make THE BEST investment you can: Invest in yourself – your own education. Once you have that knowledge, no one can ever take it away.

In the beginning “newbie” traders & investors DO NOT INVEST any money. It probably won’t be long when you’ll feel you’re ready to invest your hard-earned money. Before taking that step, you really should do research about what you are investing in.

You should LEARN HOW:
A] the stock market works. B] to invest in many, many various ways. C] to properly trade
D] Properly manage the money in your trading account.

“Nnewbies”] investors & traders ALWAYS make mistakes. In fact, throughout a person’s trading, he/she makes mistakes.

In the beginning, you READ & LEARN about the market & how it works: Read “Investing for Dummies” As you read & do research about the investments you are interested in, sometimes you’ll come across a financial or investment term you never heard before.
Http://investopedia.com is a free site. It’s recognized by Y! A as a “Featured Knowledge Partner”.

You can usually find excellent, easy-to-understand definitions of many financial & investment terms by going to Investopedia’s dictionary.

It also has a free, paper trading platform. You can set up a virtual account & almost trade as though you were trading with real money.
Http://finance.yahoo.com is also recognized by Y! A as a “Featured Knowledge Partner”

THIS IS NOT SPAM: I DO NOT know this man. I am not associated w/ him in any way. I know of him & the wonderful book he wrote. You should invest in a copy of
“The Richest Man in Babylon” by George S. Classon. You can get the book on http://amazon.com
Its easy to read & follow. You can write in it & make notes in it. Simply read five [5] pages of this book – or any book – each and every day.
OR You can leave it on the shelf, on a table or on the floor & let it collect dust.

Thanks for asking your Q! I enjoyed answering it!

VTY,
Ron Berue
Yes, that is my real last name!

Maria asks…

How to invest in the stock market?

Hi,

I’m 13 (a girl) and for the past 2-3 years I have been really interested in investing and the stocks. I got like $40 for Christmas from family that I would like to finally invest in common stocks in a well known company, with relatively low risks involved, instead of spending it on nail polish and clothes (which I typically do lol). My question is, how DO I??? Like how do I invest in what I previously described? Do I go to a bank or what?

Thank you!

John answers:

Simple answer – open an account with a brokerage firm (Fidelity, E-Trade, etc.) or a brokerage arm of a bank (I know Bank of America offers it or ING/Sharebuilder). But……

Unless you have a meaningful sum of money (in the range of a couple thousands), it wouldn’t make sense for you to buy stocks. The commission fees are going to eat away all your profits – you can get as low as $5-$10 per trade these days, but it would still be a big chunk of money on your $40 Christmas cash. Plus, the brokers probably won’t let you open your own account unless your parents open an account in your name. So the best thing to do now is to start saving and read about investing. If you are really interested in investing and wanted to see the action, you can try paper trading (pretending that you have some money and trade those imaginary dollars) by either just write down your trades on paper or use some free websites to do it.

P.S. It is nice to hear that there are some young people out there actually interested in saving and investing your money for your future.

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