stock-market-basics
Finance

Understand the Stock Market Basics

To some people, the idea of stock market trading is like a maze that they cannot decipher the right way through it. What if I told you that it could get simpler by understanding the five most important basics in the market? That is the main subject of this piece. This article will get you from scratch to equipping you with the basics of how the stock market works and enable you to understand the reaction of stocks.

What is a Stock Market?

Just like any other market, it is a system where buying and selling of shares of publicly traded companies take place. What is a share? A simple definition of a share is a portion of ownership in the company from which you buy the share. The more shares you own, the larger the percentage of the company you own, and vice versa.

Unlike popular beliefs, the stock market is not a gambling ground. Losing all your investment is also a rare thing to happen – unless the company in which you invest goes bust.

The millions of investors in the stock market have opposing views. Everyone wants to be the best trading stocks. Since not every investor can be right, the result is an adversarial system. While one investor makes profits, another is making losses. Being on the right side of the cash flow is imperative for success. You need to have the best stock market tips up your sleeves.

What causes the Fluctuation in Stock Prices?

The uncertainty in stock market trading can be majorly attributed to the constant fluctuation in the prices of stocks. The number of buyers and sellers affect the prices of stocks. Therefore, anything that will change the number of buyers and sellers of a given stock will influence the price of the particular stock.

You will be amazed at the things that could encourage or discourage buyers and sellers. The list is long including the media, natural perils, opinions of major investors, the available alternatives, political or social unrest, risk, and demand and supply to mention a few. More buyers than sellers will push the stock prices up while more sellers than buyers will lower the stock prices.

The Reasons why the Stock Market is so unpredictable

The main stock market tips you will learn about stock trading is to buy when low and sell when high. The problem comes in when you want to know the exact time the prices will be the cheapest for you to buy, and when the prices will be the highest for you to sell. What causes the unpredictability of the stock market? They include:

  • The ever varying stock prices
  • Unforeseen triggering events
  • The investors’ decision process

When is the best time to trade stocks?

The principle that says you buy when low and sell when high should not be followed blindly. When a fall in the share prices happens, you should know why. Is there a possibility of it rising again or falling more? Understand the company first before any transaction. Ideally, the strategy for best trading stocks is to buy when other players in the market are pessimistic and sell when they are optimistic.