Stock Market Basics
Stock Markets are a collection of different markets and exchanges where regular activities of buying and selling of assets happen in both money markets and stock markets. There are many assets which are traded in the form of stocks or any other monetary form of securities. Securities are basically some forms of assets which have any form of a monetary value which can be held for the time being for that company or individual. Stock Exchanges on the other hand are the subsets of Stock Markets but sometimes both Stock Markets and Stock Exchanges are confused as a single entity. Stock Markets are highly regulated with a set of rules and guidelines. As there can be many Stock Exchanges in a country such as Nasdaq, New York Stock Exchange(NYSE) etc. When we say that someone trades in Stock Markets, it means that they buy and sell equities or assets in one of those stock exchanges that are a part of the Stock Market in that country. Here is an illustration of how stock markets work to give you an overall idea:
We can say that stock markets work in a manner that they provide a regulated environment with a zero to nonoperational risk as it is all managed under a set of rules and guidelines. As we see in our general lives that there is a designated place for every item such as clothing etc. so, like this financial market have their own environment in the form of Stock markets where people buy and sell their commodities and also provide new companies the opportunity to sell their shares in the form of Initial Public Offerings(IPO), through which companies get a chance to raise funds by selling some shares of their companies which also gives an asset to the buyer which he/she can hold a long as they want and if the company goes successful then the prices skyrockets, hence giving a good profit in an instance. Following is an illustration of primary markets where commodities other than stocks are also traded in stock markets:
The stock market, is a place where you can buy or sell a company's stock. A company usually issues shares in order to raise capital. Capital is the cost that a company incurs in relation to producing its products, services, or stock. Stocks are basically a collection of shares. The people who buy these shares are the shareholders. Shareholders can be an individual or an organization. The term stock market can also apply to all the stocks available for trading on the exchanges. The stock exchanges bring sellers and buyers together, to create a market. Buyers and sellers can trade stocks at physical location called a trading floor, or through a computer terminal. Buyers and sellers make trade stocks through brokers. Stock brokers are licensed to do business with major exchanges, and handle customer transactions for a fee. Most companies and retail traders use stock brokers, and computer terminals to reduce trading costs, when trading stocks.
The first Stock Exchange in the history of the world came into existence in the 17th century in Amsterdam where the VOC's, bonds and securities was officially first traded. The reason behind the existence of Amsterdam Stock Exchange was to provide a platform where traders and brokers can carry out their business effectively. New York Stock Exchange(NYSE) on the other hand is one of the largest stock exchanges and one of the oldest stock exchanges in the world. The exchange came into existence in 1792 by a meeting of 24 stockbrokers and then it formally took the name of New York Stock and Exchange Board in 1817 and the present name NYSE was given in 1863. So, for the longer duration from the start till 1868, the exchange had a limited number of members and the membership was sold from one member to the new person.
The history of stocks and stockbrokers' dates to the 12th century when in France, agricultural debts and banks had to manage them, different people traded in debts so they can be called the first brokers. In 13th century, bankers started to trade in government securities. Bankers in Italian cities also started to trade in government securities in the 14th century, this was very easy for many states as they were not being controlled by a Duke but different influential citizens who made this possible. In terms of United Kingdom and other neighboring countries, the security trading and stock trading started there in the 16th century and then finally in the 17th century, the first formal stock exchange was formed in Amsterdam with the name of Amsterdam Stock Exchange. As of now, New York Stock Exchange(NYSE) is one of the largest stock exchanges in the world and a very impactful one in the financial market.
While learning about the stocks and the stock market, it sometimes become very confusing for people who are looking to invest in stocks and make some profit for themselves. The whole idea of an investment is to put a certain amount aside so that it can produce any kind of profit for you in future so you can reap the benefits of your hard work when you are in need. The famous investor Warren Buffet says that put a certain amount aside and do not look for it every now and then and try to invest it in anything so it can generate some sort of passive income which can help you grow and can make you more financially independent. The idea to invest in stocks is very simple and everyone can do it but of course, there is risk involved in the financial world.
You can start your stock investments through any stock exchange you want by first opening an account and now a days many stock exchanges provide a tutorial for new users or beginners who are just starting their career in stock trading. In case you do not feel confident in opening an account and investing directly by yourself, you can always go to a Stockbroker who is an authorized person in Stock investment and trading, a Stockbroker is an experienced person who know all the nitty gritty of the stock market and which stocks can perform better given your requirements. Some stockbrokers work in short term contract which is that they only trade for you but do not provide you any advice. You can also opt for a full-service stockbroker who also provides you the advice for long term investments and plans for future which are beneficial for you in terms of profits.
Whenever someone hears about stock markets or the prices of stocks in the global market, the first question that comes to mind is about who these people are who trade in stock markets, the question is very reasonable to some extent and the answer is very simple yet technical. The people who trade in stock markets are sometimes individual investors but usually there are investment companies who work only in stock and that is their main business. What investment companies do is that they take money from individuals who are looking to invest in stocks but do not have any knowledge or experience and they give their money to these investment companies so they can make some profit against their money and give some percentage of their profit to the investment company. So, the investment companies make their profits over someone's money. Here are some tips for day trading:
Stock traders can be agents, stockbrokers who encourage people to invest in a certain stock and speculators. Individuals can have their own proprietary account for stock trading, or they can buy and sell stock through an authorized agent who works in the trading of stock on behalf of his customers. So, the agents get paid in the form of commission for making a trade successful. Agents and Stock Traders are the same person. All the major stock exchanges have their own market makers or big bulls who controls the price variations of stock through which they can stay on top and hold their positions. Stock traders are the people who buy and sell stocks, futures or bonds and they also advise people or investors to maintain their good portfolios to make good profits. As there is good profit for stock traders in the form of commission, there is also a risk factor which is involved, and which plays its part in case of a stock market crash. Here are some of the best times to Trade in the Stock Market.
Risk
Risk is a very important psychological aspect to consider when trading in any market or investment venture. You should understand your level of danger you feel comfortable with when it comes to losing your hard earned money. Some investors will go on to blow there entier accounts, while others will never experience such losses.The good news is that getting your account wiped from 10K to 0 can be avoided with a simple risk managment plan. Bear in mind, when it comes to risk, there is no right or wrong. Its a matter of preference on how much money you're willing to lose at the end of the day when the market is not going your direction.
If you're the kind of person who has trouble managing their money, then you might want to consider investing in something with a much lower risk than the stock market. The stock market comes with a lot of volatility, and with it the chance of losing a significant percentage of your account if not managed properly.
Market volatility can occur during earnings, news, and important world events, however its important to note that the stock market can also become volitile anytime without notice. A good rule of thumb is to never risk more than 2-5% of your account per trade. That way if your trade should go against you, you still have plenty of money to live to trade another day. Just remember the higher the percentage of the risk, the more you stand to lose.
Even if you do all our homework, research, and due diligence, the stock market is an unpredictable beast, and at any time can swallow your position as it moves against you.There is an old adage beginning traders should follow, "Never invest money you can't afford to lose, and aways have a risk managment plan in place!"
Many people tend to think that the stock markets are the easiest way to make money and get rich in a little time. That is not true but quite opposite to the reality, the key to success in stock markets is to invest as much time as you can in order to succeed there. The key idea is that the longer you are in market, the more chance there are for good business. The more time you spend in the market, the more it allows you to collect your dividends, if you are the kind of investor who comes and goes from the stock market every now and then, you can forget about getting your dividends back because in order to collect them, you will be needing to be fully invested, the more you stay invested, the more chances of profit increases.
Another successful strategy which can be more profitable to you is buy and hold strategy, many investors tend to make mistake after buying a stock and when they see a small increase in the price, they sell them. The idea of buy and hold is the more time you retain your stocks, the more valuable they become with time and can help you make more profits than you can imagine. The successful investor like Charlie Munger and Warren Buffett made their profits on stocks by holding on to them for decades, the whole idea is to invest in those stocks which are new and hold on to them for longer periods and when the right time comes, they will provide you good returns. Many people have made their Million Dollar portfolios by investing in a mere $60 stocks and held on to them for decades. So, the game is the longer you wait, the more you will earn.
The price of a stock is highly dependent on the investors and stock traders who are holding that stock. The main factor which determines the price of a stock is the supply and demand, the more people willing to buy a stock, the higher the price of that stock goes and on the other hand, the more people are selling a particular stock, and no one is buying them, the price will automatically fall as now the supply of that stock has increased and there is zero to none demand for that. There are many factors which can create such scenarios and those factors can either make a company successful or can also make a company fall. The prices of a stocks are dependent on the positive or negative news about the company, for example, recently Elon Musk tweeted about the Doge Coin, which is a cryptocurrency, the tweet was about him buying the Doge Coin and adding the cryptocurrency option as a payment method in Tesla, the prices of the Doge Coin went skyrocket the very next day.
So, if there is a negative news in the market about a company, no one will risk buying those stocks in fact people would start selling it based on the word of mouth. A company's worth is known as its Market Capitalization which is proportional to the total stocks out in the market. Some startups tend to raise money from Venture Capitalists and progress through different series of funding rounds but failed in making any profit in terms of their product of whatever they proposed to do. So, in such cases these companies do not have any market cap in the stock market. The price of each stock is mainly determined by the reputation of the company, new events occurring or word of mouth.
