8 Stock Market Basics for Beginner Investors
BusinessWhat is the stock market? Because it is important? How can I make money 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 matters, and how you as an investor can take advantage of it for profit. Read these tips to increase your knowledge of the basics of the stock market.
What is Stock?
Simply put, ‘shares’ means owning a part of a company for personal growth and benefit. Since you buy shares of stock and thus “invest” in a company, you also reap the benefits of getting a share of the company’s profits.
Stock Market Definition
The stock market is where stocks 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 Exchange?
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 Stock Exchange (Hang Sang). Therefore, stock exchanges are international venues 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 managerial decisions. Preferred shares carry 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 be 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 (causing demand and prices to drop) while others may be buying securities. (causing demand and prices to rise).
How to pick winning stocks
Generally, if you choose a company that is doing well financially, is stable, and has great growth potential, then your chances of choosing 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 can select a company that harnesses wind or solar power.
What are stock tables?
Once you have 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 of investing 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 to 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 one. With these basics, you are now ready to delve into the lucrative world of stock markets!