As you know that if you look at the data of the last two decades, then you will come to know that the popularity of invest in stocks has increased continuously, in which you and everyone else are. However, the issue of market volatility also remains a matter of concern.
If you are a beginner and are thinking of investing, then these ups and downs of the market can seriously affect your portfolio as well, unless you trade with a strategy.
It is not necessary that you always have profit, you may have to face loss sometimes.
That is why if you are thinking of investing your money in the market, then you should know how the market works?
And with this you also have to pay attention to various market factors that can affect the performance of individual stocks and the market. It is very important for you to have an understanding of all these.
In todayโs article, we will learn in depth about the basics of investment, start investing because there are different types of shares available in the market.
We also have to earn returns from the market, so for this, what are our major strategies to get maximum returns from the market, we will know about all these from todayโs article.
What is the Stock Market?
Before understanding the stock market, we understand the market. First of all, you have to understand the market that what is the market?
There is a market around you too, a place where things are bought and sold is called a market, isnโt it? Similarly, the stock market is also a place where stocks are bought and sold.
Many companies are listed in the market and all those companies issue their shares for sale at different prices and investors like you and us buy those shares.
As soon as the price of those stocks increases, we earn profit by selling our shares, This is the stock market. But just the opposite, on the other hand, if the price decreases, then when we sell and then we lose on selling them.
Now let us also tell you that only stocks are not bought and sold in the stock market, various securities such as equity, derivatives, bonds, mutual funds, etc. are also bought and sold for investors in the market.
What Are Stocks?ย
So friends, in todayโs post I am going to give you all the information related to Share means โpartโ.
This means that only a part of the ownership of any company is the share. Which is the smallest part of the capital of the company. So let us understand the share meaning well as an example.
Letโs say I have a company named TechoWealth.Com and the total capital of my company is $1,000.
Now I want to divide the total capital of my company into 100 equal parts.ย Thus, the value of each share of my company is $1000รท100 = $10.
Now this $10 part is the smallest part of my company and this smallest part we will call the share of our company.
In this way the unit is called โShareโ. And in this way we will call the total capital of the company as โShare Capitalโ.
In this way a formula was also prepared:
Share Capital = Total number of Shares ร Share Price
If you also want to invest in market, then you can also buy and sell the shares of any company online through a broker sitting at home.
Brokers have some websites or apps that provide you the facility to buy and sell shares. For example, if you want to buy and sell shares online in India, then you can buy or sell any share by visiting the apps or website of brokers like Zerodha, Upstox, Angel broking, Sherekhan etc.
Similarly, if you want to buy and sell shares in the United States, many brokerage companies in the United States provide this facility, such as: Charles Schwab, Fidelity Investments, E*TRADE, and TD Ameritrade etc.
Types of stocks
There are mainly two types of shares: Common stock and Preferred stock.
- Common Stock: Whenever the company releases its stocks, most of the companies give their stocks to the shareholders in the form of common stocks. And through this share the stockholders become eligible to receive dividends. Stockholders of common stock can also elect the companyโs board of directors, and thus this common stock represents ownership in a company.
- Preferred stock: Preferred stocks typically have a higher claim on the companyโs assets and full earnings than common stock, but do not come with voting rights. This is a special type of stock that combines aspects of both common stock and bonds in a single security, providing both regular income and ownership in the company.
Apart from these two categories, there are many subtypes of stocks, which include the following stocks:
- Growth Stocks: These are the stocks of those companies which are expected to experience very rapid growth in the coming future. But due to these reasons the share price of these stocks can be risky. The reason is that these are more sensitive to market fluctuations. and thus you can also see the possibility of high returns from this. In this way, if you say about growth stocks as a definition, then such stocks, which continuously maintain profits or reduce profits, are called growth stocks. And in this way, with the help of this, the company is able to manage its profits continuously. In this, it is not certain whether the company will give Dividend to its investors or not, it all depends on the company itself, which is not certain whether the company will give Dividend or not. Mostly in this type of company, Dividend stock is less or not there at all. Now you must have come to know that after all these growth stocks are very risky.
- Value Stocks : These are believed by the market to be undervalued stocks and that is likely to increase in value over time. It is often seen that they often mature companies with stable profits are also available at a discount. In this way, whatever price is fixed, the company gives a discount in that too and sometimes the company gives a discount on its profit as well. This means that the company distributes some part of its profit to its share holders in the form of Dividend.
- Dividend Stocks: Dividend stocks are those stocks which regularly pay dividends to the shareholders. Whenever the company earns profit, then the company distributes some part of its total profit as dividend to its share holders. And we call such stocks as Dividend Stocks.
- Cyclical stock : Cyclical stock are such stocks in which the profit of the company is linked with Economic. So in this way, if the economy is good, then the companyโs profit will also be good and if the economy is bad, then the companyโs profit will also be bad, because in this the company is directly linked to the economy. In this way, the stocks of cement, oil, metals, gas etc. come in the stocks of cyclical stock.
How Does Stock Market works?
The stock market in any country works on the law of demand and supply i.e. demand and supply.
The stock exchange gives an opportunity to the companies listed in the stock market to raise money from people like you and us and earn profit by investing that money in their business. And instead of all these the company gives you its shares.
And in this way, you can become a shareholder in that company by buying shares of the biggest companies of the country through the share market.
As soon as the company gets profit or the share price of the company increases, you will also get profit.
Let us now understand in another way how the share market works?
Suppose you have a good business idea but you do not have enough money to get a company off the ground.
Now when you do not have money, first of all you will find an investor so that he can invest in your company.
So now you heard about an investor and you went to that investor but your talk did not make it there.
Then what will you do now? So friends, one way is that now you will form a company and contact the stock exchange board of the country.
The Stock Exchange Board completes its paperwork and thus the stock market game begins.
As soon as you get your company registered with the Stock Exchange Board, you get help from the Stock Exchange Board in raising funds from the market, because your companyโs shares become live in the open market.
Now as soon as an investor buys your shares in your company, he becomes a shareholder in your company.
And in this way, in exchange for some shares of your company, you get help in raising funds for your company.
By the way, let me tell you that the work of buying and selling shares or the work of the most important link between the company and the shareholders is done by brokers.
Now you must have understood the stock market to some extent. But none the less, let us take a real life example to understand this concept of stock market completely.
For example, letโs say you and I are two users who have been monitoring the shares of deeshu.com for a long time. Suppose that currently the share price of deeshu.com is trading at the price of $1100.
Now there is a market, so anything can happen. Now suddenly a big news came in the market that CEO of the company, Mr. Deepak Kumar resigned from his post due to some internal conflict from the company.
Now there is a market, so the effect of this news will directly affect the shares of company. So due to this news, the stock of the company had to fall, so this stock fell by 10% from its current price.
Now two different viewpoints are being formed here:
First is that you have 500 shares of TechoWealth.Com and you believe that no good news is going to come for the company in the coming days, so this share will fall.
Because of your thinking, you have decided to exit your shares at the current price by placing a stoploss of $950 so that you do not incur further losses.
On the other hand, I took this as an opportunity because I saw that the stock had not touched this price in the last 2 years and moreover, I believed that the stock would come back down to $1100 within a few days. .
So friends, in this way both you and I users are eyeing the current price of the company at $950 so it is possible that both of our orders will be executed.
And in this way here you will be out of stock and I will have 500 shares of the company.
Exactly the same happens in the stock market. In the share market, just on the basis of this concept, one user buys the shares and the other sells them.
Now with this example, you must have understood very well how the stock market works.
How to Invest in Stocks?
As we have told about the stock market in great detail. After reading this much, you must have understood that investing in stocks is not a rocket science.
If you want to start your investment journey, then you have to follow these steps to start your investment journey right away and then as you spend more time in the stock market, you will get to learn more.
Along with this, your experience will also go on increasing in the share market.
- Open a Trading and Demat Account : As we have already told you that to be able to buy and sell shares, first of all you need a trading account and a demat account. This is an online account where the shares you have bought are stored. You can open account with any registered broker in your country. If you open both account with the same brokerage house, then your trading process becomes very easy.
- Decide how you want to invest: If you have knowledge about share market, then you can also invest in stocks yourself. And if you are having trouble in selecting the shares, you can also hire professional services to select the shares. Investing in stocks You can do this through your trading and demat accounts. Many brokerage houses recommend investing in some selected stocks of that time for a few days for free.
- Pick the stocks you want to invest in: As soon as you have prepared a blueprint of the portfolio of shares in which shares you want to invest, then you can invest in your selected stocks through your demat account. If you are new to the stock market, then it is advised that you choose those stocks which have good performance and have created an established track record. If you wish, you can start your investment journey with Index ETFs.
- Keep adding to your portfolio:ย As soon as you make a portfolio of yours and invest in stocks. So you have to keep adding such good stocks to your portfolio for a long period of time. Now that you have a strong portfolio that can help you meet long-term financial goals, you need to constantly monitor your portfolio and be consistent with market movements. You have to keep adding good shares to your portfolio like this and keep investing in more stocks over time.
- Monitor your portfolio: Now you have also invested in stocks (good stocks) and now your portfolio is also full of very good stocks. Now the time has come for you to take out time for regular monitoring of your portfolio. You also have to see whether the stocks added to your portfolio are performing as per your expectations or not. If you find that one of the stocks you have invested in is consistently under performing, consider switching to another company.
Conclusion
So friends, you must have come to know that there are inherent risks involved in investing in stocks.
Therefore, it becomes very important for you investors to understand that you should allocate your investment only after diversifying your portfolio.
You should invest in stocks (any stocks) in the stock market only after understanding the speculation between different asset classes and your own risk tolerance.
For this, you can also use risk management tools like stop-loss orders, margin etc. which can be useful for you.
If you have liked the information available in this post, then please share this post on your social media platform. So that more people can also be overwhelmed by this information.
