To a beginner, the stock market might appear like a complicated maze. But, in reality it is only a mechanism that works in a particular fashion. All you need is a quick understanding of how this stock market machine works. It’s alright if you don’t know the first thing about it. This article should help you build a strong foundation, so you can slowly work your way up the stock market ladder.
Let’s Start With The Basics
We’ll start with 5 frequently asked questions that can give you a basic understanding of what happens in a stock market.
1. What are Stocks?
In simple terms, stocks are nothing but a company’s worth, split into several buying pieces. Companies simply cut their value into tiny pieces called shares, and then sell these pieces to people who are willing to buy them. So by buying a stock or share in the company you are claiming a part of the company’s ownership. Don’t get confused between stocks, shares, or equity. They all mean the same thing.
2. What is a Stock Market?
The picture pretty much summarizes the role of a stock market. Think of stock exchanges like the NYSE and NASDAQ as market places where companies are listed to sell their stock, and you as an investor purchases these stocks and monitor their performance.
3. Who is Stock Market Best Suited For?
In all honesty, the stock market is for every Tom, Dick, and Harry. That said, only people with a faint heart need to maintain a cautious distance from the world of stocks and stock market. Trading in a stock market is much like a rollercoaster, full of unexpected surprises, ups, and lows.
4. How Stocks Trade?
Have you seen a trading floor in movies? Then you must have been quite taken aback by the madness that goes down there; traders wildly throwing their arms up, yelling, signaling to each other, and frantically waving. Well, that’s one way stocks trade. Another civilized way is via a network of computers where traders are electronically made. In both the trading floor and a computerized exchange, there’s a specialist that matches the buyer and the seller.
5. What Causes Stock Prices To Change?
The stock market is a game of demand and supply. Stock prices are never stable and change every day as a result of these market forces. If more people look to buy a stock, the demand goes up and the price moves up and vice versa.
Now, since you know what a stock market is, let’s take a look at some tips that can help you make your way around stock markets.
To make a stronghold in a stock market and survive it, you need to only remember these five things:
- Know Your Investment Requirements And Limitations – Before you get your hands dirty in a stock exchange, remember that investing more than you can afford to lose is foolish. Know why you’re investing, what you want to accomplish from it, and what can be the possible limitations in your investment process.
- Decide On An Investment Strategy – Choose an investment strategy that best suits your personal outlook. There is a plethora of investing strategies that you can adopt. Do your research, talk to a finance and stock market expert, stay neck to neck with the financial media, and then decide on the right investment strategy.
- Enter The Market At The Right Time – You don’t need an astrologer to draw out your plans to inaugurate stock trading. The right time to enter a stock market is determined by a number of market and economic forces like demand and supply, fed policies, market conditions, performance of the global economy, and so on. You need to play close attention to the movement of these crucial players and figure out if the market is playing well amidst these conditions.
- Do The Trade – If you believe that the market is favorable, don’t hesitate any longer. Go out and place your bets.
- Monitor Your Portfolio – Stock market investing is not a onetime game. You cannot place your bets and retire in peace. You need to constantly stay ahead of the curve and keep revisiting your portfolio to explore better opportunities.
With these things in mind, entering the stock market will definitely be an easier affair. However, don’t stop at this. Do extensive homework on market conditions and pick out the best stocks for your trading portfolio.