Investing is a term that is used to refer to the act of putting money into financial schemes or shares with the expectation of receiving a profit, when it comes to the stock market, investing means buying and selling of stocks or securities. For you to successfully know how to invest in the stock market, you have to understand the basics of how the market works. That includes the rules and the risks involved in the stock market. Understanding the stock market and the way it works is pivotal if you want to be successful in the business. First and foremost it is important to note that it is not a quick money scheme and that it takes skills and expertise to be able to succeed in this business. Secondly, the financial market is not for the faint hearted. This is a business that is risky and you need to be able to cut your losses.
How Does The Stock Market Work?
Before you can understand what it means to invest in the market, you have to know how the stock market works. It is basically the buying and selling of shares (securities) that are listed on a financial market for sale. Once a company goes public it lists shares in terms of stock, you can then buy the stocks. The stocks give you some ownership of the company and depending on the type of stock you buy you can vote at any shareholders meeting.
Understanding The Stocks
Investing in the stock market means that you have to buy and sell stocks. That is the reason why it is important to understand what stocks are and the different types that are available. The major type of stocks on the market, are called the share stocks. The share stocks are the smallest unit in the ownership of the company. There are two types of share stocks;
- The common stocks
- Preferred stocks
These two types of stocks are different in features. Once you buy a common stock, you are guaranteed a voting right. Every share earns you a vote so the higher the shares the higher your voting power. Preferred stocks on the other hand don’t have the voting rights, but the shareholders get dividends that are calculated at a fixed rate. The common stocks are calculated in variable rates. In an event of liquidation, the preferred shareholders are paid first before the common stock holders.
How Do You Earn In The Stock Market
Investing in anything usually means that you will get your money back with interest. Now, when it comes to the stock market, you get your returns in two ways. You can get your money back through dividends that are paid by the company either quarterly or semi-annually. The dividends are usually calculated in reference to the company’s earning and performance. The dividends are usually calculated in fixed rate or variable rates. The other way that you can earn money from the stock exchange is when the stock you bought appreciates and you sell it. The market is very unpredictable and you are advised to sell your stock once it appreciates if you want to earn good money.
There are certain considerations that you must keep in mind if you want to know the stock market business.
1. Factors Affecting The Stock Value
You have to know and understand the factors that affect the stock value before you can invest in the stock market. There are internal factors that affect the value of the stock directly. The internal factors include the introduction of a new product and service to the market, the employee layoff, the change in management and many more. The external factors may affect the stock value directly or indirectly. The external factors include the foreign exchange market, the inflation, interest rates, just to mention a few.
For you to successfully invest in the market, you have to commit not only money but time. You have to consider the amount of time you are willing to invest in the business. You can choose to become a part time or a full time trader.
3. Number Of Stocks To Buy
In the stock market you can buy and sell as many stocks as you want as long as you know the risks involved. You are however advised not to buy many stocks from one company. It is recommended that you start with buying a few stocks as you learn the business.
Effects Of Investing In Stock Market
Stock market is a risky business and if you choose to invest in it you must be ready to cut your losses. It’s estimated that only a small percentage of the people in the stock market become successful in the business, while the remaining number loses most of their investment. You have to invest time to understand the stock market, and acquire the relevant skills.