Stock Market 101: Things You Need to Know
The stock market is often regarded as a place to grow your wealth overnight. But that’s merely a myth. No one can get rich on the stock market on a quick sudden. This is because entering into the stock market requires a long-term strategy and great patience to get profit. As an investor, or soon-to-be investors, you need to understand that there are various factors that control stock price, therefore, you have to carefully study these aspects in order to make profitable trades. However, it is also true that gaining profit from each and every trade you make in the stock market is impossible.
When you are investing in the stocks, it is expected that you will experience making loss on some trades, but the trick for a successful trade in investing in the stock market is to overwhelmed those losses with profitable trades.
In this article, you will learn the important rules of the stock market investment that will help you minimize the loss and increase the number of your trades at the stock market that will help you get a profit. But before that, you will need to understand what the stock market means and its purpose in the financial market.See also Breaking the Stock Market Myths
What is the ‘Stock Market’?
The Stock Market, or equity market, refers to the place where the shares of publicly-owned companies can be bought or sold either OTC (Over-The-Counter) or by centralized exchanges. The equity market gives companies the ability to access capital in exchange for offering interested outside parties a fraction in the ownership of the company. It also offers opportunity to investors to increase their income without the high risk of entering into their own businesses with high expenses and startup costs. Selling of stocks, on one hand, helps the companies themselves grow rapidly.
When you buy shares of a company, it is generally related to the rise in the company’s worth. Hence, trading on the stock or equity markets can be advantageous to both investors and owner.
However, there is also a negative risk involved, small or big depending on the amount of stock bought, that one can lose money in a trading environment. If the trader decides to sell his stocks when the value is lower, he will sell at a loss.
Purpose of the Stock Market
The stock market has two important purposes. The first is to give companies a capital that they can use to fund and grow their businesses. If a company issues one million shares of stock that initially sell for $10 a share, then that gives the company with $10 million of capital that it can use to expand its business, disregarding the extra fees that the company pays for an investment bank to manage the stock offering. Offering stock shares instead of borrowing the capital required for expansion can help companies to prevent incurring debt and paying interest charges on that debt.
The second purpose of the stock market is to provide investors who buy stocks with the chance to share in the profits of publicly-traded companies. Investors can gain profit from stock buying in one of two ways. First, they can profit because some stock pay regular dividends. Second, buying stocks can profit them through selling their stock for profit if the price of the stocks increases from their purchase price. For instance, if an investor purchases shares of a company’s stock at $10 a share and the stock price rises afterward to $15 a share, then the investor can then realize a 50 percent profit on their investment by selling their shares.See also Advantages and Disadvantages of Trading Shares
Some Important Rules of the Stock Market Investment
• HAVE A LONG_TERM INVESTMENT STRATEGY
When you start investing in the stock market, you should aim for long terms. Even if you are trading short term, you still need to analyze and understand the price movement of the stocks on a long term basis. This is necessary as each of the stocks has a certain price movement and follows a cyclic pattern that unfolds over a period of time. So if you really want to take advantage of the stocks fluctuations and benefit from it, you need to have a long term investment strategy that will absolutely pay you in the long run. You should also have a strategic investment pattern so that you can better manage your portfolio even when the stock market is going through a volatile state.
• GET THE RIGHT STOCKS FOR INVESTMENT
Getting the right stock means choosing the stocks that have greater tendencies that they will appreciate in the future at the stock market. You need to decide which type of stock you are going to invest. If you are in the stock market with the goal of increasing your bottom line with a long-term investment, the large cap and blue chip stocks should be your priority. These stocks rise in the stock market in a steady manner and they are always profitable investment if you are planning for an investment over a span of a few years.
• KNOW THE RIGHT TIME TO BUY AND SELL STOCKS
Once you have chosen the stocks for investment, you need to decide whether it is the right time for investing in that particular stock. Even if the stock appears good and looks to have a good potential, it might cause you some losses if you do not identify the highest price level for investing in the stock. For this, you need to analyze the price movement of the stock technically and identify the correct price level when you should buy and sell the stock.
Knowing what the stock market means and how it can benefit the companies and investors involved can help in deciding whether or not to invest in the stock market. Also, remembering the important rules in the stock market investment can provide you a good investing strategy in order to have profitable trades.
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