Many people are familiar with the term “stock market,” but most of them are not sure what it is all about. In simple terms, stock market trading involves purchasing a percentage of a business or company in the form of stocks. When you do this, you essentially become part owner of that business. The more stock you buy, the more of a company you own; and when that business makes a profit, you earn a portion of it depending on the amount of stock you own. It sounds simple, right?
However, it is very important to know that the process of stock market trading itself involves buying and selling of shares. Shares refer to a single unit of stock and they are usually bought or sold depending on predicted price changes. Most times, shares are bought when the prices are low and there is certainty of it increasing in the near future. And when that time comes, the same shares may be sold at a higher price to make a profit.
Anyone can master the art of stock market trading but it can be very confusing at first. If you are not careful, you could end up losing a lot of money on your very first days of trading. It is very important to take time to learn and understand at least the basics before venturing in the markets.
Here are 6 important things to know about the stock market.
1. All stock markets have risks.
- There is no such thing as a sure investment when it comes to stock market trading. All types of investments involve a certain degree of risk and the stock market, in fact, involves quite a higher risk. However, there are certain stocks that are steadier and less risky. Most of these stocks are from companies that have been in business for a long time. For instance, Alibaba shares always have success in the stock market. The same applies to ESPN, which is owned by Disney. In fact, Disney stock prediction is positive most times. But even such stocks can take a sudden toll during times of market stress. As an investor, this is one of the most important things to understand.
2. All public companies make regular filings with the SEC.
- All public companies are required to document everything, including its finances, challenges and ongoing conflicts to the Securities and Exchange Commission. If you are a new trader, you can always do your homework with the SEC to find out which companies are good to invest in.
3. There are no bad stocks.
- Stocks that perform poorly or give traders a string of losses are usually dismissed from the market. But they do not always stay down. In fact, better opportunities to make profit arise when stocks are dismissed because they will always be sold at a cheaper price. When economic conditions come to favor such stocks, traders who had taken a risk on them make huge profits.
4. Stocks with Dividends.
- Not all stocks pay dividends to their owners. Dividends are a percentage of profits that is paid to shareholders. Stocks with dividends are not immune to fluctuations, but they at least offer returns when profits are made.
5. All profits are taxed.
- All profits generated from the stock market are subject to tax. However, this will depend on how long you hold the stocks. Holding stocks for less than a year will subject you to a tax of between 25% to 40%. But if you hold your stocks for at least a year or more, the tax drops to at least 15%.
6. Price does not determine the value of a stock.
- The price of a stock does not determine whether it is a good or bad investment. A $10 stock is not cheap and a $100 is not expensive. Do not buy a stock based on the price tag. Buy stocks based on research and diversify your investment to lower the risk. Buying 1 $100 stock may be a better strategy than buying 100 $1 stock.
Stock market trading is a good way of making money. More people are now trading due to the convenience of being able to make investments using a computer. But keep in mind as much as it can bring huge profits, there are also chances of making a loss. Learn as much as you can before you venture into the business.