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8 Stock Market Basics For Beginner Investors

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  • 8 Stock Market Basics For Beginner Investors

    What is the stock market? Why is it important? How can I make money learning investing tips and tricks? As a beginner who's interested in learning about investing you first need to familiarize yourself with stock market basics.

    These 8 stock market basics are the foundation for understanding how the market works, why it's important and how you, as an investor, can leverage it for profit. Read these tips to increase your knowledge of stock market basics.

    What is Stock?

    Simply put, 'stock' means to own a part of a company for personal profit and growth. Since you buy shares and therefore "invest" in a company, you also get to reap the benefits of earning a part of the company's profits.

    The Stock Market Defined

    The stock market is where shares are traded. Just like the super market is a place to buy and sell groceries, a stock market is a place to buy and sell stock.

    What is a Stock Exchange?

    A stock market is also called a stock exchange. You may have heard of the New York Stock Exchange (NYSE), the London Stock Exchange (LSE) or even the Honk Kong Stock Exchange (Hang Sang). So exchanges are international places where a company's stock may be traded. They can be physical buildings but they can also be electronic exchanges, such as the NASDAQ, which is an online platform.

    What Types of Stocks are traded on the Stock Exchange?

    There are basically two types of stock: common stock and preferred stock. Common stock, by definition is more common and it denotes variable dividend payouts and one vote per share to help determine a company's managerial decisions. Preferred shares denotes fixed payout (called dividends) over the length that share is held and may not have the same voting rights. Common shares are generally considered riskier because dividend payouts are dependent on the company making a profit. If the company goes bankrupt, common shareholders are amongst the last to be paid, if at all.

    Why Do Share Prices Go Up And Down?

    Stock market basics tell us that stock prices fluctuate because at any given time, some people might be selling large quantities of securities (driving demand and prices down) while others might be buying securities (driving demand and prices up).

    How to Pick Winning Shares

    Generally if you pick a company who's doing well financially, is stable and has great growth potential, then your chances of picking a winning company are high. You should also pick companies in industries that are doing well, so for example if there's a boom in the alternative energy industry, you might select a company harnessing wind or solar power.

    What are Stock Tables?

    Once you have picked your portfolio (made up of many shares in various companies), you should monitor them on a daily basis. A stock table is a summary of how your individual shares are performing on any given day and can be found in your local newspaper or on online financial websites.

    What Makes Investing Risky?

    If the company does badly, you could lose your investment, but if the company does well, you can exponentially multiply your profit. The skill in stock investing lies in understanding which stocks are too risky and which are relatively less risky. There is no such thing as completely risk free because you cannot individually control what happens to a company or to the economy. You can only control your own investment decisions.

    Before investing, every beginner should read up on these basics because an informed decision is a potentially money-making decision. With these basics you are now ready to delve further into the lucrative world of stock markets!


    Article Source: http://EzineArticles.com/3567680
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