So, you want to invest in the stock market but do not have a clear idea about the process. In this article, you will get to know a few basics about how to trade in share market which might come in handy.
What is a stock market?
The stock market or the Equity market is where the shares of public companies are either exchanged or bought. Stocks are paper assets of a company. Buying them makes you a partial owner of the company. After the money is raised in the Primary Market, the stocks are sold or traded in the Secondary Market.
The main benefit of investing in stock market is that you will never lose all the money you invested. In fact, with a good knowledge of how the market works and the correct timing, you will be able to expand your initial small sums into large ones. If you buy shares of a particular company, you will make profits through the dividends paid by the company during its period of financial growth. Similarly, you may lose money if the company goes through troubled time because instead of making capital gain, you will have to sell the stocks at a loss.
What makes stock prices fluctuate?
Stock prices depend on the market condition. If there is more supply than demand, then stock prices would fall and vice versa. The company’s earnings pay an important role to determine when the stock prices will go up and down. The predictions and opinions of noted investors matter too. They look closely into the company’s performance and predict accordingly. Apart from these, any natural calamity, the introduction of a new director/president in the company, winning/losing a lawsuit, launching new products or services- these are some of the factors which play a role in deciding whether the company’s stock prices will go up or down.
How can you invest in the share market?
You can buy stocks from a broker. How to learn share market strategies? If this is the question that is bothering you, then go for the Full service brokers who offer you stock related advice as well manage the dealings. You can also go for the discount brokers who will not give you personal attention but manage the trading.
You can avail the direct stock purchase plans offered by the company. They are a good way to invest variable amounts of money at regular intervals.
You can also use a Divident Reinvestment Plan, in case the company does not have a stock purchase plan. In this case, your dividends will get reinvested in the equity directly. This is a good option if you are looking for a long term investment.
There are special online services which would sell you stocks at a discount rate. This is a good option for initial investors who want to judge the temperature before taking the plunge. Unlike the brokers, these services will only execute your orders and not give any advice about investments.
The Bull market and the Bear market:
A Bull market is basically the best scenario. The economy is flourishing, Gross Domestic Product is on the high, people are no longer unemployed and the companies are making loads of profit. This is a good time to invest in stocks and shares. A person is said to have a ‘bull’ outlook if he tries to hold the stock in this Bull market till it has reached its optimum. However, this rosy situation does not last for long.
The ‘Bear’ market is the opposite of this. The economy is bad and companies are experiencing major troubles. This kind of a market make it difficult for people to pick shares. The investors, on the other hand, feel it safe to sell off their stocks either through short selling or they keep on holding them till the bear market gives way to the bull market again.
The changing cycles in the market ensure that both the bulls and the bears will see returns. These are the some basics things you should know before start investing or trading in the share market.