What is the stock market? Because it is important? How can I make money by learning investment tips and tricks? As a beginner interested in learning about investing, you should first familiarize yourself with the basics of the stock market.
These 8 Stock Market Basics are the foundation for understanding how the market works, why it’s important, and how you as an investor can take advantage of it for profit. Read these tips to increase your knowledge of stock market basics.
What is Stock?
Simply put, ‘shares’ means owning a piece of a company for personal benefit and growth. Since you buy shares and thus “invest” in a company, you also reap the benefits of earning a share of the company’s profits.
Stock Market Definition
The stock market is where shares are traded. Just as the supermarket is a place to buy and sell groceries, a stock market is a place to buy and sell stocks.
What is a Stock Market?
A stock market is also called a stock exchange. You may have heard of the New York Stock Exchange (NYSE), the London Stock Exchange (LSE), or even the Honk Kong (Hang Sang) Stock Exchange. Therefore, stock exchanges are international places where a company’s shares can be traded. They can be physical buildings but they can also be electronic exchanges, like the NASDAQ, which is an online platform.
What types of shares are traded on the Stock Market?
There are basically two types of shares: common shares and preferred shares. Common stock, by definition, is more common and denotes variable dividend payments and one vote per share to help determine a company’s management decisions. Preferred shares denote fixed payments (called dividends) over the life of the holding and may not carry the same voting rights. Common stocks are generally considered riskier because dividend payments depend on the company making a profit. If the company goes bankrupt, common stockholders are among the last to get paid, if at all.
Why do stock prices go up and down?
Stock market basics tell us that stock prices fluctuate because, at any given time, some people may be selling large amounts of securities (driving demand and prices down) while others may be buying securities. (which makes demand and prices go up).
How to choose winning stocks
Typically, if you choose a company that is doing well financially, is stable, and has great growth potential, then your chances of picking a winning company are high. You should also choose companies in industries that are doing well, for example, if there is a boom in the alternative energy industry, you might select a company that harnesses wind or solar power.
What are stock tables?
Once you’ve chosen your portfolio (made up of many stocks in various companies), you need to monitor them on a daily basis. A stock chart is a summary of the performance of your individual stocks on a given day and can be found in your local newspaper or on online financial websites.
What makes investing risky?
If the company does poorly, you could lose your investment, but if the company does well, you can multiply your profits exponentially. The skill to invest in stocks lies in understanding which stocks are too risky and which are relatively less risky. There is no such thing as completely risk-free because you cannot individually control what happens to a company or the economy. You can only control your own investment decisions.
Before investing, all beginners should read these basics because an informed decision is a potentially lucrative decision. Armed with these basics, you are now ready to delve into the lucrative world of stock markets!