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The stock market is one of the most viable ways for people to grow their wealth in today’s modern world. Even beginners can learn how to be successful in the stock market by following some of the same best practices that professionals use. This means understanding how the markets work, how to analyze stock information, and how to buy and sell stocks - as well as knowing that there is always some risk involved. With that said, here’s a guide that’s sure to help you if you’re just getting started as a beginner investor.

How the Stock Market Works

The stock market is essentially a “meeting place” where buyers and sellers connect to exchange stocks and other types of securities. When a company wants to grow faster and needs additional funding to do so, they will often decide to sell shares of their company in public stock markets, known as an Initial Public Offering (IPO).

Once the company’s shares are listed for sale on the market, practically any person can buy those shares and then sell them to another person at a later time. Each share of a company represents an investment or a piece of ownership within the company. When you buy a share, you're not buying the entire company, but rather a very small piece of the company. The more shares you own, the more you're invested in a company.

Stock Exchanges
There are many different stock markets (also referred to as stock exchanges) throughout the world with their own regulations that apply to those who want to buy and sell stocks as well as companies who want to list their stocks.

The New York Stock Exchange (NYSE) is the largest market in the world, but there are many others. Stocks are the most common type of securities traded on these exchanges, but there are other types of securities traded as well, such as bonds or futures contracts.

How You Can Invest

There are several different ways for you to invest in the stock market. How you invest your money depends on what type of control you want over your investments and how involved you’d like to be. The following are some of the more common ways that people invest their money, either into the stock market or other types of securities.

Investing through a 401(k), either privately or through your employer, is one of the most common ways that many people invest in the stock market. In addition to matching employee contributions, most 401(k) plans will also automatically invest an employee’s contributions into a portfolio of stocks. The individual stocks in each portfolio are pre-chosen, so you don’t normally have control over choosing individual stocks that you’re invested in.

However, it’s common to have a choice over what specific portfolio you’re invested in, as many employers allow their employees to choose their own 401(k) plan from a list of different available plans. The standard plan offered through your workplace will normally be a more conservative type, meaning that it invests in stocks and other securities that typically have a lower risk.

However, when different 401(k) plans are offered, some may offer higher-risk options. The advantage of a high-risk portfolio is that you may stand to see more in returns on your investment over time. The drawback, as you'd expect, is that there’s a greater risk of losing money as well. A 401(k) through an employer may not be the best option for those who are looking to invest large amounts in the markets because there are often contribution limits, which may prevent you from contributing a certain amount within a given year. However, for most people, this can be a great way to get into investing and start saving for retirement.

Brokerage Account

Most people who decide to invest on their own do so by opening a brokerage account. A brokerage account is similar to a bank account, but it allows you to buy and sell stocks whenever you choose, giving you full control over your investments. Brokerage accounts can be opened through brokers, most of whom offer online accounts.

Some brokers may require you to visit a local physical branch of their company to open an account, while others may allow you to open one online. One requirement some brokers may have is a minimum deposit amount, which is normally anywhere between $500 to $1,000. Once you have money deposited in your account, you’re free to buy and sell stocks as you wish.

Retirement Plans and Mutual Funds
You can also invest in retirement plans and mutual funds. Both of these two investment vehicles are similar to a 401(k) in that you may be offered different plans to choose from, but the individual stocks or securities in each plan are chosen by professionals who you’ve entrusted with your investment money.

Mutual funds are portfolios of securities that are managed by these professionals for a fee or with commissions involved. Retirement plans are similar and normally invest your savings in mutual funds as well, but they normally have penalties or fees if you withdraw your investment before it has reached a maturity date.

In addition to stocks, another type of investment available is cryptocurrency. Bitcoin, Dogecoin, and Ethereum are different types of cryptocurrencies, which can all be traded through cryptocurrency exchanges in the same way that stocks are traded through stock exchanges.

With cryptocurrency, you don’t have to purchase an entire coin or unit. Some people simply can’t afford a single bitcoin, so many brokers allow you to purchase fractions of a coin instead.
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Starting Out

If you’ve deposited your money into a brokerage account, you’re ready to buy your first stock or security. However, before you do so, you should make sure that you have a strategy and have made a decision on what type of trader you plan to be.

Figure Out Your Style
There are many different types of stock traders, and while you can change your strategy or trading type at any time, most traders find a strategy that works for them and stick to it for long periods of time.

Day traders, also referred to as "intraday traders," choose to buy and sell stocks throughout the day. This is considered one of the more risky types of trading because fluctuations in stocks throughout the day can vary greatly. There are also more rules and restrictions when it comes to making multiple trades within a day or a single week. While some have claimed to make a lot of money in a short amount of time using this method, it’s best to stay away until you are a seasoned trader.

There are also long-term traders, also referred to as “set it and forget it” traders. This is a more traditional style of trading that involves buying stocks and holding them as long-term investments. There are often tax advantages to this type of trading, depending on which country and markets you’re trading in.

Value investing, one of the most prominent strategies, involves traders who look for companies that may be undervalued. Their goal is to purchase stock in the company when it’s at a bargain price, and then resell it later once others in the markets have realized the true value of the company.

Speculative traders are those who buy stocks based on speculation that some type of future event, such as a yet-to-be-released product or an increasing trend, may benefit the company’s stock. An example of this would be purchasing stock in companies that specialize in a new form of technology that hasn’t become widely accepted or embraced by most people yet.

Check Commissions and Fees
Before you decide to buy or sell your first stock, you should always check the current commissions and fees that your broker charges. It’s common for online brokers now to offer no-commission fee accounts, meaning that they don’t charge any commissions or fees for you to trade stocks. However, some still do charge and you should be aware of these, as they can add up fast and take away from your expected profit returns.

Buying Stocks

When buying stocks, you must first specify which stock you want to purchase. This is done by typing in the abbreviated name of a company, which is known as a “ticker symbol.” After you type in the ticker symbol for a company, you must then specify how many shares of the company’s stock you want to purchase and at what price you want to buy them.
After you've entered both the ticker symbol and the number of shares, you then have many different choices on how to place a buy order.

Market Order
A market order means that you’re buying a stock at the current share value that others are offering it. The share value that you see on your screen when you’re ready to buy the stock is the market order price you’re likely to receive. However, stock prices can fluctuate greatly, even within seconds or minutes each day, depending on how volatile a stock is. For this reason, many people choose to use a limit order when buying stocks.

Limit Order

With a limit order, you have more control over the price that you purchase a stock at. For example, if the share value of a stock is currently at $5.00, but you feel this is too expensive, you can use a limit order to put a lower value in, such as $4.50. You can then decide if you want the limit order to stay open until canceled or to close within the same day.

If you choose the “good until canceled” option, the limit order will stay open indefinitely. Once the share value price drops to $4.50, your broker will automatically try to purchase those shares for you at that price.

If you choose a limit order that closes within the same day, this means that your broker will only try to purchase the shares at $4.50 if the share value hits that price within the same day that the order was placed. If it doesn’t drop to $4.50 within the same day, then the order will be canceled and your broker will not try to purchase any more shares until you place another limit order.

While there are many other types of orders and strategies traders use, some of which can be very complex, a market order and limit order are the two most basic types that every beginner investor should know about.

Selling Stocks

When your stock has reached a price that you’re comfortable selling at, the process is similar to buying it. You will place a sell order by first entering the ticker symbol of the company and the number of shares you want to sell. You can then sell your stock using different sell order types, such as a limit order or market order.

If you decide to sell the stock as a market order, it will sell your shares at the current value that buyers are willing to purchase your shares at. While this may be the simplest way to quickly sell all your shares, it may be safer to place a limit order.

When you initiate a sell limit order, you specify which price you’d like to sell your shares at. Your broker will then attempt to sell your shares at your specified price - or even higher if there’s an available buyer that has placed a buy order for a greater price.

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Understanding Stock Information

Although you may have found a company’s stock that you’re excited about buying, you should always research any prospective investments. This means understanding stock terms and the information on a stock’s profile page. The following are the basic terms and information you’ll find when looking at any stock.

Share Value
The share value, also known as the share price, is the current value of each share of stock. Think of this as a meeting point where buyers and sellers are currently meeting in agreement on how much they’re willing to buy and sell for.

Open and Close Price
The open price is the share value that a stock opened at within the current day or any previous day. The close price is the last share price that a company's stock sold at just before the stock market closed for any given date.

P/E Ratio
The P/E ratio, or price-to-earnings ratio, can tell you how closely a company’s current share price matches the company’s earnings over the past twelve months. Even as a beginner, you should always be aware of what a company’s P/E ratio is. The lower the P/E is, the more reflective the share price is of the company’s earnings. However, the P/E ratio does not reflect the earnings a company expects to make going forward.

Dividend and Yield
Some companies want to encourage investors to hold their stock for long periods, and they do this by offering dividends. Think of a dividend as a type of interest payment that is made at different times, often multiple times within a year.

Companies will offer a dividend amount which they will pay to you on every share you’re currently holding. The dividend yield is how much you can expect to earn on your investment as a percentage specifically from dividends within a given year.

Market Cap
Market capitalization (market cap) can tell you how large a company is in terms of its overall size in the stock market. It’s a measurement of the total dollar amount for every single outstanding share they have in the market.

A Parting Piece of Advice

Now that you’re equipped with what you'll need to understand the stock market, you should be able to trade stocks like the pros. As a final piece of advice, you should always think about diversifying your investments. A common rookie mistake for beginners is that they will often invest all or most of their money into a single stock.

This leaves you open to more risk. By diversifying your investments in not only different stocks but also different types of industries, you’re protecting yourself better by avoiding any declines in the market that might affect some companies more than others.