Table of Contents
What is the Stock Market?
Simply put, a stock market is a platform where financial instruments such as stocks, bonds, shares, etc. are sold and bought.
What does a Novice Need to Note?
The very first step one must take to participate in the stock market is to open a brokerage account or hire a broker- these accounts and people are those who have special licenses to participate in the stock market, others do not. In this step, it is important to ensure that whatever option one chooses- a brokerage app or a real flesh and blood broker- one must be sure to make decisions based on the commission fees of the said broker.
The other expenses attached to this are transaction costs which include taxes paid to the government by the broker for every transaction etc. However, there are discount brokers or brokerage platforms that are cheap yet the decision, research and most of the responsibility falls on the novice concerned-these options simply offer a platform.
The next step is the purchase of stocks. Now, to pull this off, it is necessary that the novice has a good knowledge of the various types of trade occurring on the market, and based on that, the novice may choose the style. So how does stock trade help in the generation of profit? Stocks are simply equity investments that enable the owner to own a certain share of a company and its profits. One may also choose to invest in funds that are ready-made baskets of investments.
There are two types of funds- active funds which are actively managed by the fund manager and cost extra as one has to pay for the services of the manager and passive funds or index funds that simply follow an already decided market index and require no managing (cheaper than active funds).
Generating the Profit
There are two ways to generate wealth from the stock market- by holding stocks that generate good interest and thereby profit or by trading stocks that are on the rise at a higher price than they were bought by one, thereby generating profit.
The rule is that if a company is performing well or is predicted to perform well, the demand for the shares of the trading company increases whereby on trading, the shareholder can generate profit as the selling price is higher than the buying price and if it is predicted to go through a slump or is going through a slump, the demand for its shares fall and on trading, the shareholder suffers loss as the selling price is lower than the cost price.
However, the generation of profit from trading depends highly on the market circumstances and the reaction of the investors to the fluctuation in the value of a company which may or may not reflect the true value of the shares and can lead to spurious predictions. If there are more sellers for a certain stock than buyers, the price falls and vice versa.
A very important concept when it comes to trading stocks to earn a profit is the stock’s “market cap” or market capitalization which is nothing but the total price of the outstanding shares. This “market cap” is used to identify and compare stocks of companies with similar “market cap”. It is also very important that a novice does not judge the value of a stock based on price alone as it is not determined by the value of the stock but by the relationship of price-to-earnings and the net assets. Some companies keep big shares to keep stock prices high without the stock itself being valuable.
It is also very important to know when to sell the stock as delays and early sales may cause a loss of profit. However, there is a very specific type of trading that occurs that is concerned with very short periods, known as splitting. The other form of trading is called swinging. Etherum Code and Bitcoin trade are some of the go-to places for investment in trading.
Form of Earning
Dividends are quarterly payments that companies must make to their shareholders every year. Often, individuals choose dividend investing rather than trading as it consistently generates a dividend over the years. The novice needs to understand what type of stock would be a safe bet for dividend investing. Certain companies pay their shareholders a constant dividend regardless of economic conditions, such stocks are called Blue-Chip stocks. Certain companies choose to pay the shareholders first and the shareholders get paid in case of bankruptcy, however, the stock price does not change much as common stock does and thus the investors may lose out on profit.
The strategies adopted in the stock market are many and varied. The best way a novice can compete is to do thorough research, take professional and expert help if necessary and be aware of what the crow is interested in. It is also generally advised to invest in diverse stocks as the nature of the stock market is very unpredictable.
A few tips for novices during their entry into the stock market are as follows:
- It is important to know the risk that one can afford to take and are willing to take while deciding their strategy portfolio.
- It is important that investment is done regularly and thus management of one’s finances is extremely important.
- Diversification in terms of investments made is important as it not only increases the chance of profit but lowers the risk factor.
- One must also ensure that their portfolio is not imbalanced towards one or more assets and take steps to correct it.
According to most of the experts out there, the process of entry into the stock market and being successful takes a long-winded road and it is necessary to be patient and not rash about decisions made and to take into account one’s liability and capability. With patience, perseverance, and awareness it can indeed be possible to generate a large amount of wealth through this method.
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