Stock Market Basics For Beginners
4 mins read

Stock Market Basics For Beginners

The Basics of the Stock Market

The stock market is about supply and demand. Once a stock is bought, over time other traders may desire a piece of the company. As the popularity increases, the sale price goes up. The theory is the rise is caused by the potential and value of the company, also referred to as fundamentals. There are many reasons the price of a stock can change, and some investors can predict this.

Choosing Stocks

Fundamental analysis is when stocks are chosen based on the public statements and financial reports of a company. This includes income statements, balance sheets, new company releases and quarterly and yearly earnings. These reports are all available online, along with tutorials explaining how they are read. The other important factors are historical analysis, media publications and industry and market reports. Technical analysis is when traders detect patterns and swings in the prices of stocks. This is not widely accepted or practiced, and fundamental analysis or a combination of both is generally used to purchase stocks. Prior to purchasing stocks, it is important to research the business.

Trading Services

A trading service must be established before stocks can be bought or sold. The cost support from the broker, fees, mobile access, research tools, ratings and available investments should be considered. Services offering personal advice are a good choice for a beginner. As the trader gains experience, options including advanced trading, and margin and short selling trading become important. Discounted online brokers enable traders to purchase and sell stocks, mutual funds, options, fixed income funds, exchange-traded funds, certificates of deposit, bonds, funds, retirement funds and much more.

The Skills

Successful trading starts by learning. Reading financial and news websites, tuning into podcasts, and looking at investment courses all increase the trader’s education. Local investment clubs enable new traders to have discussions with experienced traders. An online stock simulator provides a way to practice skills with no risk. The penny stock market is another option, and numerous companies offer penny shares.

Tips for Beginners

Significant returns are gained with gradual investments and the right foundation. Money a trader can’t afford to lose should not be invested. Once gains occur, the trader can reinvest in the gains into other funds and stocks. Investments should be diversified, and stocks are not the only way to make a profit. An electronically traded index fund can make a good investment, and contain numerous stocks. ETF’s are diversified, traded like stocks, and a loss in one sector can be erased by a profit in another. Research must be done before trading, and skills must be used often. Prior to investing, the financial reports and current news on a company should be researched. For individuals who do not have enough time, the answer may be using a professional for investments.

A plan is necessary before purchasing a stock. Predefined criteria are as important as sticking with the plan. Emotions are effectively removed from finances by placing a limit on spending. There should be a reason for choosing a specific stock, a set limit on the investment, and an exit strategy should be in place. It is not wise to purchase stock when it is high. Even if the stock is rising at a fast pace, jumping in is not the right answer. Opportunities to purchase at a lower price are usually the best solution. Giving into the fear of losing the funds invested must be avoided. Just because a stock plunges does not mean it is time to take out the money. Trading stock represents an investment for the long-term, and both perseverance and patience are required.