The Beginners Guide to Understanding the Stock Market

stock-marketMost people do not have a clear idea of what the stock market actually is. They just think of things like Wall Street and Gordon Gecko—certainly not pretty images to associate with. There’s nothing sinister about the stock market, but the news tend to perpetuate myths that fuel its negative image.

You have to understand that despite its less than cheerful depiction in media, the stock market is not the fearsome place many picture it to be. Investing in stocks can be very profitable, especially if you see this as a long-term investment rather than a risk-taking venture. Certainly, the returns are much higher than simple savings.

Investing in stocks is about making your money work for you, instead of leaving it dormant. But before you start investing, it’s a good idea to find out more about the stock market first. The worst thing you can do is to jump into an investment without researching your target first.

So…what is the stock market?

The stock market is a platform upon which investors can buy and sell the shares of publicly listed companies. Companies go public and offer up shares to investors. These investors in turn purchase these shares and become co-owners of the company.

How is the stock market profitable?

The goal of the market is to offer profit to both investors and companies. First, companies get additional funding to further their business. This is a means of generating capital for expansion and development.

As for investors, they become part-owners of the company, and therefore earn a share of the company’s profits. This is what they call “dividends”. More importantly, investors have the option of buying shares now and selling them for a profit later, when the stock’s value increases. This is why some investors deliberately look for undervalued stocks that are poised to increase in value over time.

How do you invest in stocks?

An investor who wants to buy shares of a certain company cannot just go to the company and make a purchase. A stockbroker will work as your agent and purchase (and sell) stocks with your permission. However, hiring a stockbroker can be very expensive, because you have a dedicated representative working on your portfolio. It is only advisable to hire a stockbroker if you’re investing a significant amount in stocks.

For smaller, long-term investments, there are now online options. An online broker will let you buy or sell stocks through a website. There is no need to deal with an actual stockbroker or to set up appointments. It’s faster and easier and a lot more affordable for smaller investors.

How do you buy and sell stocks?

Most of the time, investors don’t get involved because they have stockbrokers to handle the process for them. However, if you’re using an online broker, you have to figure out the basic buying and selling transactions.

The easiest way to buy stocks is to check the asking price of the company’s share then pay for it. There is no haggling or negotiations involved. A second option is to have a standing order. Here, you will have an amount you specify for a particular company. Once the shares of the company hit the price you identified, your purchase (or your sale) will go through.

How do you get started?

Start by doing a bit of research. Read about stocks and how the market works. Then, decide on the broker you need. Most small investors who are looking to diversify their portfolio will go for online brokers because of the simpler and less expensive program.

It’s also a good idea to consult experts before you commit to any investment. They can help you figure out a plan for your portfolio. This way, you’ll be able to choose the level of risk you’re willing to undertake, plus the companies you’d like to invest in.

So do you think you’re ready to begin investing in the stock market? How are you going to start? Share with us in the comment box below!


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