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What is Stock Market?
The stock market may seem to be a daunting place for beginners. While there are so many things to take into account, it is important to be cautious so as to learn how stock trading works and how you can make money by trading stocks. Many who are just starting out have a very limited idea of what takes place in the stock market, how it works and what it takes to start trading stocks. We hope that this article can help you get a better idea of it all.
The stock market is where shares get bought and sold. Investors can be individuals as well as institutional. Nowadays the process is conducted through major stock indices and it all happens electronically. Stocks get tracked by the market index so as to come up with a value that is based on the weighted market capitalisation methodology. In practical terms this means that a large price movement of a single large stock can end up influencing the index on which it’s listed.
What are stocks?
Stocks are basically ownership certificates of particular organisation. These are issued so as to raise capital. Their prices fluctuate depending on the organisation’s performance. Events like the appointment of a new CEO, product launches and other important occurrences will move the price of the stocks.
What are shares?
Shares are the proportional ownership of stock in a company. One can own 10,000 shares, and based on the total number of shares, there will be a certain ownership at stake. For instance if there are a total of 1 million shares, that investor will have a 1% ownership.
How do stocks get traded?
It is important to start off by distinguishing between trading and investing. Trading refers to making a profit or suffering a loss as a result of speculations. This is generally over a relatively short period of time. Traders tend to focus on technical patterns, and use trading styles such as scalping so as to enter and exit the market, and depending on the price movements they will earn or lose money.
Investing on the other hand revolves around making money by purchasing an asset and holding on to it for a longer period of time. The investor will get dividends and interest during this period. Any long term increases in the value will lead to earnings when the stocks are eventually sold.
How to start trading?
To get started you will need to choose a trading platform. You will set up an online account, by providing your proof of ID and set a funding method. It is best to find a low commission broker when starting out.
As an investor you should also decide whether you will be choosing individual stocks or mutual funds.
The following checklist should help you to get a good idea of how to get started:
a. Determine your trading goals.
b. Research and choose a broker.
c. Research different companies.
d. Always aim for a diversified portfolio.
e. Exercise risk management throughout.
Next, you will need to know how to choose the right stocks to trade.
It may be a good idea to start with companies that you are quite familiar with. This will help you to better ascertain the financial health of the particular company based on its financial statements, revenues and profits over the past few years, the debts it has etc. If you have a good understanding of the company you should also be aware of its plans in terms of new products or expansions, whether they are increasing the dividends paid, its liquidity and volatility, and other key considerations.
Before trading stocks it is important to consider the following aspects:
- What are your goals? consider both short and long term goals and what your plans in the near future are.
- The risk involved consider how much money you have to trade or invest and be prudent about your decisions. Try to acquire knowledge on the companies you will be investing in so as to be prepared for market swings.
- Emotions it is of critical importance to be able to keep emotions under control. This includes your personal emotions, as well as the ability to act and react properly when hearing certain speculations and rumours.
- Portfolio your portfolio should be diversified, both in terms of the sectors and industries you invest in, as well as the types of investments, such as bonds, forex, commodities.
As a beginner you may wsih to start with stocks you are familiar with. If you are not sure about the number of shares you should buy at first, try to focus more on the total share value instead of the amount of shares.
The stock market is where shares get bought and sold. Investors can be individuals as well as institutional. Nowadays the process is conducted through major stock indices and it all happens electronically. Stocks get tracked by the market index so as to come up with a value that is based on the weighted market capitalisation methodology. In practical terms this means that a large price movement of a single large stock can end up influencing the index on which it’s listed.
What are stocks?
Stocks are basically ownership certificates of particular organisation. These are issued so as to raise capital. Their prices fluctuate depending on the organisation’s performance. Events like the appointment of a new CEO, product launches and other important occurrences will move the price of the stocks.
What are shares?
Shares are the proportional ownership of stock in a company. One can own 10,000 shares, and based on the total number of shares, there will be a certain ownership at stake. For instance if there are a total of 1 million shares, that investor will have a 1% ownership.
How do stocks get traded?
It is important to start off by distinguishing between trading and investing. Trading refers to making a profit or suffering a loss as a result of speculations. This is generally over a relatively short period of time. Traders tend to focus on technical patterns, and use trading styles such as scalping so as to enter and exit the market, and depending on the price movements they will earn or lose money.
Investing on the other hand revolves around making money by purchasing an asset and holding on to it for a longer period of time. The investor will get dividends and interest during this period. Any long term increases in the value will lead to earnings when the stocks are eventually sold.
How to start trading?
To get started you will need to choose a trading platform. You will set up an online account, by providing your proof of ID and set a funding method. It is best to find a low commission broker when starting out.
As an investor you should also decide whether you will be choosing individual stocks or mutual funds.
The following checklist should help you to get a good idea of how to get started:
a. Determine your trading goals.
b. Research and choose a broker.
c. Research different companies.
d. Always aim for a diversified portfolio.
e. Exercise risk management throughout.
Next, you will need to know how to choose the right stocks to trade.
It may be a good idea to start with companies that you are quite familiar with. This will help you to better ascertain the financial health of the particular company based on its financial statements, revenues and profits over the past few years, the debts it has etc. If you have a good understanding of the company you should also be aware of its plans in terms of new products or expansions, whether they are increasing the dividends paid, its liquidity and volatility, and other key considerations.
Before trading stocks it is important to consider the following aspects:
- What are your goals? consider both short and long term goals and what your plans in the near future are.
- The risk involved consider how much money you have to trade or invest and be prudent about your decisions. Try to acquire knowledge on the companies you will be investing in so as to be prepared for market swings.
- Emotions it is of critical importance to be able to keep emotions under control. This includes your personal emotions, as well as the ability to act and react properly when hearing certain speculations and rumours.
- Portfolio your portfolio should be diversified, both in terms of the sectors and industries you invest in, as well as the types of investments, such as bonds, forex, commodities.
As a beginner you may wsih to start with stocks you are familiar with. If you are not sure about the number of shares you should buy at first, try to focus more on the total share value instead of the amount of shares.