Stock

Stock is a share of ownership in a company. Stock is also known as share. Some people can also refer stock as another different financial products such as government bonds or those kinds of marketable securities.

For Singapore market and some other markets, usually each stock traded by lot. Generally, 1 lot is equal to 1000 shares, or 500 shares for some of the company. For example, if the share price is $10 and each lot is 1000 shares, then you must have $10,000 cash in order to purchase this stock.

As for US Market, Investor/Trader can trade the stock by quantity as little as 1 share. For example, if you have $1000 cash and you would like to buy Share A which price is $20, then you can just purchased 50 shares instead of 500 or 1000 shares like some other markets.

Some of the important key points before you purchase price, you must see the following factors:
1. NAV (Net Asset Value) --> The fair value of this share
2. EPS (Earning Per Share) --> The earning of this share quarterly/annually

During bullish market, you can see a lot of case where the current trading price of the share is much more than its NAV. For example, the NAV of Share A is 50 cents, but currently its traded at $5, that means the current price is 10 times higher than its NAV. This might happenned, because stock trading is always about speculation, so that the current trading price might be speculation by most of the people that keep push up the price.

For those shares traded many times above its NAV, it will suffer a big hit during economic downturn or bear market. If its NAV is just about 50 cents and it is traded at $5, then you don't be surprise if it can drop until 50 cents or even lower than that, which means investors might lose 90%+ of his money if he invested during the peak/high price. It just like a bubble that burst at 1 time after it keep being pumped up for quite sometimes. It might takes 2-3 years for it to goes up to current high level, but it can just take 1-3 months for it to come back the price 3 years ago..

Some important points that you need to know when you doing stocks trading:

1. Settlement/Payment Date --> Usually is T+3 days, some brokerages can give you up to T+5 days. If you have a good relationship with the brokerages, they might give you up to T+7 days. Note: T = Transaction Date. If after this period, you still haven't make any payment or close your position, then your brokerage will force sell your stocks (they will do it at certain time based on the stock's current price).

If you close your transaction before the due date, then it will be called as contra. By doing contra, you do not need to pay up to buy and sell your stocks. You just needed to settle up the result after you close your position. If you are at profit then you can get the money, else you have to pay the money. Contra trading can be very risky as sometimes market might not behave as what it suppose to be during certain period.

2. Margin/CFD (Contract for Difference) --> This 2 types of accounts are leverage trading account. You can just put your capital 33% for Margin or 20% for CFD to do your trading. It means that, if you have $2000 in your CFD account, you can trade and hold as much as $10000 as long as you meet the margin requirements. It will keep update your position based on your profit/loss. Example, if today your open position is at profit then you will be allowed to trade more. But, if your position is at loss and your money is insufficient to hold your current open position (margin call), then you might be needed to put up some money to meet the margin call.

This kind of Margin/CFD is very high risk with high return. If you are at the correct position and trend, then you can earn a lot of money with just a very little capital. But, if you made the wrong decision, then you can easily finished up your capital at one time. You might be even needed to put more money to pay up for the losses.

3. Short --> Shorting means that you sell the share first, then only you buy it before market close. If investor/trader feels that the company "A" going to release a bad earning report today, then they can short in the morning when market open and buy back later on with cheaper before market close. Please take note that, there will be some penalty fees if those shorting does not cover back his position on the same day (naked short). SGX will buy back or close your open position 3 days later (T+3).

For Singapore Market, at this time the penalty fees are quite high for those do not cover back his short position at the same day.

4. Share Borrowing --> This is similar like short, but with this type of account, investor/trader can short the stocks and does not need to cover his position on the same day. There will be some interest charged for Margin, CFD and Share Borrowing account.

There are a lot of more info that you can find about stocks trading. I just describe some important points in general. You can check with your brokerage to find more details about account type, settlement date, penalty charges, etc. I will update this section again when I feel there are some points I want to add in the future.