Options Trading Tutorial

Can anyone tell me the difference between Equity, Option trades and Margin rates?

I am really new to stock and shares. I would like to get started and would like to know how to go about it. I would also like to know a reliable place to look for which stocks we can buy and in what quantity. Useful information about best stock picks Groups where you can get information What is the cheapest and best way to trade stocks I am really new to this and would like any guidance and help.

Public Comments

1. you should begin with a Stock trading simulator (www.investopedia.com). this will help you understand how to trade for yourself and trade option contracts. To find out what to trade start with an industry you know and begin to look at the public companies and follow the stock. For expample...if you are a computer wiz look at Microsoft stock, or if you are in to Cars look at the auotmotive car companies like Ford, GM, etc. You need to do a lot of self educating.
2. Equity = stock = share = fractional ownership in a company. Options are a little advanced for a newbie, but in simple terms, an example of the most basic option trade: you pay a small fee for the right to buy a stock at a later date for a price that is agreed upon now. Margin rates are the interest rates charged to investors who purchase stock on margin (debt); it is almost like buy stock with a credit card. Be careful with margin and options; you can lose a lot of money if you don't understand what you're doing. I used to use TD Ameritrade to trade, and liked them a lot. I have seen that Bank of America offers free trades if you have a certain amount of $$$ with them. Scottrade is one company that is known to have low fees. My best advice for learning about the stock market is to read an intro Finance text book, and then go from there.
3. <<<Can anyone tell me the difference between Equity, Option trades and Margin rates?>>> The basic idea of equity is ownership. For example, if you have a $200,000 house with a $125,000 balance on your mortgage, you own $75,000 worth of the house and the mortgage holder owns $125,000 worth of the house. You have $75,000 equity in the house. Shares of stock are sometimes called equities because each share represents ownership of a very small percentage of the company. For a slightly more comprehensive definition see http://www.investopedia.com/terms/e/equity.asp ---------- An options trade occurs when a buyer and a seller agree on a premium for an options contract, and the buyer pays that premium to the seller. For an explanation of what an options contract is, see the first tutorial at http://www.cboe.com/LearnCenter/Tutorials.aspx ------ The term "margin rate" could be used in different ways in different contexts. First you need to understand what margin is. Margin is contents of your account that can be used as collateral. If Jane has an account that contains nothing but $50,000 in cash, she has $50,000 margin available. Similarly, if John has an account that contains nothing but 1,000 shares of a stock trading at $50 per share, he also has $50,000 margin available. If you borrow cash against your margin balance, you will be charged interest on that loan. The interest rate may be called the margin interest rate or simply the margin rate. There are also margin requirements for different types of short sales. For example, to sell a stock short you need margin available equal to at least 50% of the sale proceeds. That 50% figure is usually called the "margin requirement" but you could also say the margin rate for a short stock sale is 50%. Margin is also used to indicate the difference between a product's (or service's) selling price and the cost of production. So if it costs a company $200 to build something it sells for $210, it has a profit margin of $10. Since $10 is 5% of $200 the margin rate would be 5%. For a slightly longer discussion on margin see http://www.investopedia.com/terms/m/margin.asp --------------- <<<I am really new to stock and shares. I would like to get started and would like to know how to go about it.>>> Learn before you trade. Remember you can participate in the stock market by buying mutual funds and let professionals choose which stocks to buy and sell. You do not have to make those decisions yourself. If you do decide you want to learn how to pick and trade stocks, you can start with something like the "Fool School" at the Motley Fool site. http://www.fool.com/school/basics/basics.htm?source=ifltnvpnv0000001 Warning: If you go to a number of eductaional to learn trading, you will discover that they sometimes disagree with each other. This does not mean one is correct and the other is wrong. It means the two sites are using different techniques to try to make a profit. There is no standard formula upon which everyone agrees when investing. One technique will work better at some times, but not as well at others. <<<I would also like to know a reliable place to look for which stocks we can buy and in what quantity.>>> I do not believe any such site exists. If it was that simple no one would lose money in the stock market. <<<What is the cheapest and best way to trade stocks>>> Read the section in the Fool School on choosing a broker.