What is the stock market?
A stock market is where shares of publicly held companies are bought and sold. Both the stock market and stock exchange are often used as the same. Traders in the stock market buy and sell shares in one or more stock exchanges. The stock market for beginners is a great way to approach the investment arena.
How does the stock market work?
The stock market surely gives a safe platform and a secure environment where the participants get all the required knowledge of the market and what all is present in it and transactions can happen without any fear and with confidence that there would be none to less risk.
There are two markets in the stock market, the primary market and the secondary market.
In the primary market, the stock market allows the company to sell its shares to the public for the first time through the process of initial public offering (IPO).
This helps the company to get the funds they require.
A company is divided into several shares, some of these shares are sold to the public at a price per share.
Investing in shares is done with the expectation of the share value increasing and some investors are investing with the expectation of dividend payments. Some investors stay for both reasons.
For this whole process, the stock exchange acts as a facilitator and gets a fee for the service from the company or the financial partners.
Securities they already own can also be bought and sold by investors using the stock exchanges, this is called the secondary market.
Functions of a stock market?
The stock market offers price transparency, liquidity, price discovery, and fair dealing in trading activities.
A stock market for beginners needs to support price discovery, where buyers and sellers determine the price of a stock together.
Markets should ensure that orders are executed at fair prices for qualified and willing traders.
Stock market investors are of different kinds, market makers, investors, traders, speculators, and Hedgers.
An investor buys stocks and holds them for a long time while a trader holds the share for a shorter period and sells it within seconds or a few months.
The market is like a gamble for the speculator.
Steps to Get Started:
Step 1: Identify your risk tolerance:
Decide before investing how much you are willing to lose. There are several categories of stocks. Large capitalization stocks, small-cap stocks, aggressive growth stocks, and value stocks.
The risk levels of all these are different, once you get to know your risk tolerance, you can choose and set your goals.
Step 2: Define your goals:
It is very important to determine investment goals, you will be asked about your investment goals by some brokers when you open your brokerage account.
If you are beginning, the investment plan can be to increase the money in your account, if you have worked a while you may think about generating income and increasing and growing your wealth.
Whatever your goal is it’s better to just define it and review it regularly so that you stay focused. A few examples of investment goals can be, money after retirement, saving for university, buying a house, etc.
Understand and determine your investment style:
Some investors want to take care of their portfolio by themselves while others want to invest and not take care of it by themselves. It’s not that you should follow what you chose forever, but it’s better to choose something to start with.
- If you are confident that you have enough knowledge and you can take care of your portfolio and investments on your own, do carry on with it. Traditional brokers online allow you to proceed with your stock, bond, ETFs, index fund, and mutual funds.
- An experienced stockbroker or financial adviser can help you make your decisions, they can help with investment decisions, can help you take care of your portfolio, and they could even make changes to it for you. This would be very helpful for beginners who want to start investing and understand the importance of it but require help.
- There is something called a Robo-adviser which is automated and costs less than working with a broker or financial adviser.
Once the Robo gets your goals it starts to invest for you in a risk-tolerant manner.
It invests automatically for you.
Diversify your portfolio and reduce risk
Diversification of a portfolio is a very important concept to understand. For stock market for beginners investing in various assets or diversifying your portfolio, you may reduce the risk that one investment’s performance can severely harm your returns.
If you have less budget it may not be possible to invest in more than one or two companies.
Mutual funds and ETFs help in such situations.
Many brokerages do not allow you to open an account till you pay a certain deposit, here you will have to do some research, there are still many brokerage firms that allow you to open a free-of-cost account. Either choose them or choose places which take a very minimum amount.
Learn before starting:
It is the most important fact to consider. If you do not know what to do and get in with a few examples of people who got rich you would lose all your money.
It is always a better option to learn and spend time educating yourself before starting, reading books, watching videos of experts about stock market for beginners, attending workshops, and taking courses, it is very important to understand the risks and learn to manage them, and read the company analytics and charts thoroughly.
After all, this uses a simulator to practice for a few days then start investing with little money.
After taking your time and going through this whole process, then start to get all in and invest large amounts.
There is very less chance to fail after going through such a vigorous process.
The stock market for beginners is surely a very rewarding place to learn to invest as it would not be a great idea to miss out on the benefits of the market, it surely is a little risky as well but does stick around and spend time educating yourself, it is not very difficult to gain success through the stock market if you are patient, consistent and thorough.