Stock Market Basics
If the idea of entering the stock trading arena entices you, you will need to be abreast with the stock market basics. The information spewed at you from the business section of your newspaper seems gibberish? It is because you are ignorant of what stock trading actually boils down to. Learn how to trade stocks, understand the stock market, and how stock trading works instead of getting wound up in the industry jargon.
Sign up with a leading trading platform like Blockchain Tradein. It will facilitate a source for trading and ensure you know how the stock market works. In addition, we assign a dedicated manager to each client, which aids them with impactful tools, beneficial strategies, and guidance throughout the trading process (from decision-making to the final withdrawal).
What are the Basics of the Stock Market? The Must-Knows.
When you buy a stock, you buy ownership in a company. Your return on investment depends on the success or failure of the company. So the company’s success benefits you indirectly.
But taking your shares off the market when the company starts failing is not that straightforward. Brokers, now online brokers, usually represent individual traders. They deal with the exchange on your behalf.
Stock exchanges make up the stock market. Buyers and sellers are brought together on an exchange as stocks are listed there. The exchange tracks the supply and demand and price of every stock.
The Difference Between Trading and Investing
Now that we’re diving into the stock market basics, it’s crucial you learn the difference between concepts such as trades and investments.
Investing and trading are often used interchangeably, and they are pretty similar except for some crucial differences you need to be aware of.
Here the investors buy shares hoping they increase in price and can be sold later at a profit. Instead, they “go long” and follow the typical motto of buying low and selling high with investments.
Trading involves speculating share’s price movements via derivatives like CFDs. You do not take direct ownership here. These CFDs are leveraged products, meaning you can go on without committing the total value of the position.
The Stock Trading Basics
Investors are often advised to build a diversified portfolio of stocks or stock index funds and hold it no matter what. But if you like action, then stock trading it is. Stock trading has you buying and selling stocks frequently to time the market. Stock traders aim to cash on short-term market events to sell stocks for a profit or buy stocks at their low.
The traders who buy and sell several times throughout the day are essentially doing day trading.
This type of trading involves placing multiple trades per month. Trading stocks requires extensive research and a dedicated following of the market. Often investors rely on technical stock analysis, using tools to chart a stock’s movements to find trading opportunities and trends.
Online brokers often offer stock trading information, analyst reports, stock research, and charting tools to make trading seamless.
How Does One Make Money With Stocks?
You can make money with stocks through:
As publicly owned companies make profits, they sometimes choose to distribute these earnings to shareholders by paying, what you call, a dividend. You can decide to take the dividends in cash or reinvest them in the company by purchasing more shares. As a result, income stocks are stocks that pay a higher dividend than the average.
Each trading day, stocks are bought and sold constantly. As the stock price shoots up and goes higher than the price you purchased it for, you can sell your shares. The profits you make are your capital gains. Conversely, a Capital loss is when you sell your stock for a lower price than what you bought it for.
Who Decides the Value of Stocks?
The Demand of the Stock
Demand is the reflection of the scope of the company’s future performance. So, for example, if many investors want to buy a particular stock, it creates strong demand, resulting in a hike in the stock’s share price. And if the company is not doing good or the investors are selling rather than buying its stock, the share price shoots down.
The company’s success determines dividends and capital gains. Dividends depend on the company’s earnings, and capital gains depend on the investor’s demand for the stock. It moves in a cycle where each factor is interdependent.
The general happenings of the stock market also affect the performance of a stock, and the economy affects the stock market. For instance, a hike in interest rates will force the investors to sell stocks and buy bonds. If enough investors choose to take this decision, the market will drop, affecting the value of the investments you hold.
Political uncertainty in the nation or abroad, energy or weather problems, or soaring corporate profits, are other factors influencing market performance.
At a certain point in time, stock prices plummet enough to attract investors again. Then, if enough people begin to buy, the stock prices will rise, which improves the scope for profit. And it enhances the scope further as more people invest.
The Stock Market Indexes
You might have heard statements like “the stock market is up” or “the stock market is down,” these generally refer to the major market indexes.
A market index or stock index measures a stock market or a group of stocks representing the market or a market sector. This helps the investors calculate market performance and compare current price levels with the past ones. For example, the Nasdaq composite, the S&P 500, and the Dow Jones Industrial Average usually represent the overall market.
Indexes are used as benchmarks of the performance of portfolios. You can invest in an entire index that tracks a specific index or sector of the market through index funds and exchange-traded funds.
The Inverse Relationship of Bond Market and Stock Market
When talking about stock market basics, there comes a time when the bond market gets the spotlight. As the stock market goes through ups and downs, so does the bond market. This makes asset allocation and the inclusion of different investment types in your portfolio crucial for your strategy. Usually, the bond market has an inverse relationship; the stock market is up when the bond market is down and vice versa.
Your goal here, as an investor, is to invest in multiple investments simultaneously, so some of your money is always doing well.
Bull Markets vs. Bear Markets
The bear market symbolizes fear; it means the stock prices are plummeting, usually to the tune of 20% or more across several indexes. Investors pull back here, meaning the economy suffers too.
Bull markets are when investors are confident, indicating economic growth. The average bull market is longer than the average bear market, meaning you can grow your money by investing in stocks over time.
After the bull market comes the bear market and vice versa, they initiate larger economic patterns.
Stock Market Crash vs. Correction
Stock market correction occurs when the stock market drops by 10% or more. A market crash is characterized as a sudden, sharp drop in stock prices. Crashes signal a bear market. But don’t fret about a crash since a bull market will come through and last longer than the bear market in the long term.
The Full Market Cycle
A complete market cycle is the cyclical pattern of strength and weakness in the stock market. The majority of stocks that trade in it reappear continuously in an unpredictable schedule. It can go from strength to weakness and back in only a few months, or it may take years to complete the entire cycle.
The Importance of Diversification in a Portfolio
It is hard to miss out on diversification when talking about stock trading basics. Inevitable market crashes and lows can be made palpable with diversification. And while bear markets are unavoidable, you can save yourself from the risk of an undiversified portfolio. Dumping all your money in one company means exposing yourself to unforeseeable setbacks like poor leadership and regulatory issues.
Diversify your portfolio by pooling multiple categories of stocks together. Balance out the inevitable losers and eliminate the risks of a company’s mishap wiping out your entire portfolio. It will take time, patience, and research but see it through to be able to sit through market crashes and bear markets.
To Sum Up
Hopefully, the basics of the stock market have helped you understand the fundamentals of trading better. The stock market is a deep jungle with unknown caves, but it is bound to get fruitful if you hold out long enough. Knowing what you are doing, researching, and keeping track of the market will eventually help you get an edge in the market.
Trade Stocks With Blockchain TradeIn
While stepping into stock trading does feel like wandering on the endless ground, Blockchain Tradein can be the one ushering you with a road map. However, you remain the independent decision-maker with the support of an expert.
If you’re wondering how Blockchain Tradein can assist you throughout your trades, we’ve given some elaboration on it below;
- User-friendly platforms
- Mapping your trading goals into a doable plan
- Diversifying your portfolio with potential assets
- Commendable set of tools, charts, and strategies
- Dedicated managers who ensure you trade effortlessly
- Advice by market analysts who constantly study the market
- Access to hundreds of financial assets at a single location
All that’s left to do is sign up and create your Blockchain Tradein account. Get started now!