Understanding The Stock Market For Beginners

You Can Start To Understand The Stock Market Better Through This

Understanding The Stock Market For Beginners
Understanding The Stock Market For Beginners

Information from reliable sources that the stock market is a nice place to earn some good money if you know how to trade well, can make your research further for stock trading guidance. As the total amateur, in search of information about the stock market, your quest would be to understand how the stock market works. There are some concepts and terms, which would land up on your ears as jargons. And as you gradually learn to understand the stock market, their meanings would be clear to you. The first step to understanding the stock market for beginners is to get the basics clear.

What’s the stock trading hour?

The stock trading hour starts from 9:30 am and carries on till 4 pm for NYSE and Nasdaq. These are two popular stock exchanges. The timing may vary little as per other stock exchanges, their location and local time. This time span the stock exchange stays open every day, is when you can trade on stocks.

Exchange and broker

Two important things to set the basics is to understand the exchange and broker. An exchange is that market place, where the stocks of various companies are listed. A broker is that entity through which you can trade your sticks. To buy or sell stock through an exchange, you will have to go through a broker. As an independent trader too, you will have to go through a broker always. And broker may be local to you, physically available, or maybe an online entity. The exchange serves to tell you the demand and supply of various stocks as per the trades going on, and tells you about the rising, falling, and changing process of the listed stocks.

The stock market index

The stock market consists of market indexes. The market indexes refer to major ups and downs in the stock market. They act as proxies to indicate collective movements of the stock market. A major index down indicating a downtrend of a group of stocks in the market, and vice versa. Some of the big and common names are Down Jones Industrial Average and Nasdaq Composite. Just like one can invest in stocks, one can invest in ETFs, which are exchange-traded funds. ETFs are to track the movements of a particular index.

How stocks are traded

Stocks are traded by buying stocks of a company in a certain volume when their price goes low, and selling them when their price goes up. Trading can be done for the long term and short term holdings. If you aim to be more active in the market, then you will be trading stocks more often during the day. An active day trader buys and sells stocks several times through the day, and tries to earn money through the daily transactions. Otherwise traders trade several times through a month while holding on to stocks.

Bear market and bull market

A bear market suggests that the stock prices overall are falling, and this is a fearsome situation where all the major indexes are getting affected and down. When 20% or more fall is seen, the market is called a bear market.

A bull market is the opposite of the bear market. The bull market indicates a market which is constantly on the rising trend. The stock prices, index prices all rise over time in this market.

Both the bull and bear market follows one another. The bull market goes on for some time, followed by bear, and again bull. 2009 saw a big fall in the market which was a time of the bear market. Ever since that, the market has been constantly rising and this phase of the bull market from that time is actually lasting long.

The bull market indicates a strong economy and indicates that investors are confident to invest more, thereby increasing the stock prices with time. The bear market, on the contrary, indicates a stumbling economy where investors are not confident and are pulling off their cash by selling off stocks.

In general, the bull market always has a longer period than the bear market. Hence people can grow their money with stocks by holding stocks for a long time.

Stock market crash

Stock markets crash at times. A crash means a major downfall. If the downfall of the market is more than 20%, it’s deemed a crash. Often after a crash, the market changes with time to a bull market. And over time the stock market always increases in value.

Stock market correction

Correction of a stock market means the stock going down by some percentages and then regaining the value. This happens when the downfall is small and within 10%. The stock market often gets corrected in a small time when the bull market follows after a short phase of a bear market.

If as the new investor, you are worried about the stock market crash, then you must try long term trading instead of intraday trading. When you can hold your stocks for long, you can be patient, watch the market, and take cool-headed decisions about it.

Diversifying the portfolio

You are never completely risk-free in stock trading. The risk will always be there. But still, you can minimize the risk by diversifying your portfolio. The portfolio can be diversified by investing in multiple stocks of different companies. When you don’t do this and invest in only one or two companies, then this undiversified portfolio can be a big risk for you, and result in great losses if the stock prices don’t go up in near future. That’s why it’s good to balance the risk by investing in several stocks and creating a varied number of funds.

Wrapping it up

Now you know the bull and bear market, stocks and indexes, exchange and broker, and have the basics clear. You can now delve into the next step, which is about finding a good broker. Once you find a good broker, you may find some demo trading platforms for practice, and gradually get going.

 

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