8 Stock Market Basics for Beginner Investors

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

These 8 stock market basics are the foundation for understanding how the stock 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 stock 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 a market where stocks 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 stock 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 stock exchange.

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 stock denotes fixed payout (called dividends) over the length that stock is held and may not have the same voting rights. Common stock is generally considered riskier because dividend payouts are dependent on the company making a profit. If the company goes bankrupt, common stockholders are amongst the last to be paid, if at all.

Why Do Stock 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 stock (driving demand and prices down) while others might be buying stock (driving demand and prices up).

How to Pick Winning Stocks

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 stock are high. You should also pick stocks in industries that are doing well, so for example if there’s a boom in the alternative energy industry, you might pick stock in a company harnessing wind or solar power.

What are Stock Tables?

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

What Makes Stock 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 stock market 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!

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