8 Stock Market Basics for Beginning Investors

What is the stock market? Because it is important? How can I make money learning investment tips and tricks? As a beginner who is interested in learning how to invest, you must 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 leverage it to profit. Read these tips to increase your knowledge of stock market basics.

What is Stock?

Simply put, “shares” means owning a part of a business for personal gain and growth. Since you buy shares and therefore “invest” in a company, you also get the benefits of making a share of the company’s profits.

Definition of the stock market

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, exchanges are international places where the shares of a company 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: ordinary shares and preferred shares. Ordinary shares, by definition, are more common and denote variable dividend payments and one vote per share to help determine the managerial decisions of a company. Preferred shares denote a fixed payment (called dividends) for as long as the share is held and they may not have 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 shareholders are among the last to receive a payment, 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 ( that increase demand and prices).

How to choose winning stocks

In general, 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 takes advantage of wind or solar energy.

What are the stock tables?

Once you have chosen your portfolio (made up of many stocks from 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 business does poorly, you could lose your investment, but if the business does well, it can multiply your profits exponentially. The skill to invest in stocks lies in understanding which stocks are too risky and which stocks are relatively less risky. There is no total absence of risks because you cannot individually control what happens to a company or to the economy. You can only control your own investment decisions.

Before investing, every beginner should read these basics because an informed decision is a potentially profitable decision. With these basics, you are now ready to delve deeper into the lucrative world of stock markets!