Understanding Stock Market Basics: Beginners’ Guide
The stock market has been one of the most admired places for investment all the time. People, who love risk, usually consider investing in the stock market to be exciting. The stock market is always hyped for higher returns and making people rich in no time. However, when starting to invest in stock market, it is important that you remove all these illusions from your mind. You have to be objective in your approach to investing.
What is stock?
Stock refers to the unit of ownership of a company listed in the stock exchange (e.g. Bombay Stock Exchange or National Stock Exchange). More the no. of stocks you earn for a certain company, the bigger your ownership claim is.
Bullish or Bearish?
When the share price or stock price of a certain company has a growing or upward trend it is called the bullish market for that for that particular company. Similarly, when the share price of a certain company is low or in the downfall we would call it a bearish market.
Stock Market index:
A stock index or stock market index is a measurement of the value of a section of the stock market. It is computed from the prices of selected stocks (typically a weighted average). It is a tool used by investors and financial managers to describe the market and to compare the return on specific investments.
Investing in Stocks
You can acquire company stocks in a variety of ways. The most common method is to buy them with the help of a stockbroker. If you know a stockbroker that you can trust, you can call them up and tell them that you want to buy stocks of a certain company. As stated earlier, you can also contact well-known brokerage companies online.
Earning from dividends:
When a company makes an excess profit, they choose to give away cash dividends to their shareholders. If they do this, each shareholder receives an amount equal to the dividend per share amount multiplied by the number of shares that the person holds. The shareholder can cash that out or reinvest it in the same or to a different company.
Buy at a lower price and sell at a higher price:
If the prices of the stocks that you own go up, your investment value rises. If it goes down, the value of your investment also shrinks. Before you sell your stocks, the gains and losses are just on paper. If you lost money, you can just wait for the prices to go up again to get your money back.
Factors to Be Considered When Buying Stocks
1. 52-week high and low values:
The 52-week values give you an idea of the level of fluctuation of the stock prices of the company. It gives you the highest and lowest value for the company in the past year.
2. Name of the Company:
The name of the company allows you to do more research about the company. You can look the company up online to check their products and services.
3. Dividend per share:
If the company gave out dividends in the past year, it will reflect in this part of the table. This part indicates the total annual dividends that the company has given out per share. If this part says zero, that may mean that the company does not give our dividends regularly.
4. Dividend Yield:
For companies that give out dividends, this part of the table will show the comparison of the dividend given out compared to the price of the stocks.
5. Price/Earnings ratio:
Seasoned investors refer to this part as the P/ E Ratio. It compares the current stock prices to the 4-quarter earnings per share of the stocks of a company.
6. Trading Volume:
The trading volume gives you a clue on the activity of trading for a particular company stock. The more trading volume, the more active the company is. A company stock that has a trading volume of 100 was actually traded 10,000 times.
7. Day trading high and low values:
These columns give you an idea of the fluctuation of the price of the stock within the trading day. If there was bad information about the company in the news, you will see the low value in this column very close to the current price per share.
8. Closing Value:
This column states the price of a stock when the stock market closed in the last trading day. By comparing the values in this column with the daily high and low, you will get an idea of the trend of the stock.
Though stock market is known for making people rich, you may have heard pretty less about people going broke. The harsh reality about the stock market is that it comes with no guarantee for returns. The stocks which have historically performed well over the long term comes with no guarantee that it will remain the same in future. You may lose money if you don’t plan your investments properly.