How to Understand Stock Market?: Majority of the population is risk-averse and are investing in safe and fixed income securities. Understanding the stock market and then start to trade is an essential part for informative trading. You should know the correct way to select the right stocks which will make profits for you.
The right way to select the right company for investment is by understanding the annual report and financial statements and make the decisions for investment. Another way for selecting the stocks is based on technical analysis and selecting the stocks through this analysis and investing in stocks is known as trading.
Initial Public Offering (IPO) is another way by which company raise money from the investors. This is done for the future development of the company. The stock exchanges are regulated by SEBI. The two important exchanges of India are Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).
Now, Lets Understand Stock Market.
Instruments Traded in Stock Market
1. Equity
By buying equities gives you the part of ownership in the company. Equities can be bought and can be sold in the stock exchange through a broker.
2. Mutual Funds
A mutual fund is a trust of pooled money collected from many investors and is actively managed by the manager. Units are purchased in mutual fund and are priced at NAV.
3. Bonds
Bonds are the fixed-income instrument and also known as debt instruments which are issued by governments or several companies to raise the money from the investors and bonds are safer than shares.
4. Derivatives
A derivative is a financial contract whose value is derived from the underlying asset and it can be used to mitigate the risk. Derivatives include forwards, futures, options and swap.
Types of Stock to Invest in Share Market
When you invest or buy a share of a company you become a part of ownership as a common or preference shareholder. As a common shareholder, they get voting rights and are eligible for receiving dividends. But at the time of bankrupt or liquidation the company will pay the preference shareholders, creditors and debt holders first then only they repay the common shareholder. As a preference shareholder you might not get the voting rights but at the time of dividends preference shareholders are paid first.
According to the market capitalization, there is three market capitalization you can invest in they are large caps, mid-caps and small caps.
• Large caps – The companies fall under this section has a strong presence in the market and are well established.
• Mid-caps – In this section, the companies have the potential to grow and are riskier with comparison to large caps.
• Small caps – In this category, the companies that are startups are included and are highly risky than above. But sometimes this company who fall under this category can also become a successful company within overnight.
How shares are priced and who determines the price?
The market determines the price for the share. Prices for stocks move upside and downside due to the demand and supply of the company and various multiple factors affects the prices. The movement of the stocks determines where the company will move in the future.
Difference between Trading and Investment
The main difference between trading and investment is that trading is a short term buying and selling of stocks and whereas investment is a long term buying of shares. A trader usually tries to convert its money quickly whereas an investor waits for an opportunity from which its share price takes a hike in the market.
Difference between Bear vs Bull Market
Bear market means stock prices are falling across most of the indexes and bull market refers that stock prices are rising across most of the indexes. The bull markets are followed by the bear markets or vice versa. When these market patterns are observed then it is always connected with some economic patterns. If there is bull market means investors are confident and it results in economic growth but if there is a bear market then it means investors are pulling back their investment which means the economy will show a slow sown pattern.
Role of Broker in the Market
The broker helps you to execute your buy or sell orders. Brokers work as a mediator when a buyer wants a seller broker helps to find him a seller and vice versa or the seller. They will help the new beginners help him to understand where is the right place to invest their money. They will also assist you to help with how to trade in the stock market. We hope that’s you like our article of ” How to Understand Stock Market? ” You also read our blog “How to Trade in Indian Stock Market?” for more Information about Indian Stock Market.
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We at Trading Fuel provides complete knowledge about specific topics of the stock market and it is a great platform for the beginners to learn and that will help them to earn by making right decisions for investing. Trading Fuel provides blogs that are free of cost and in the blog, there are many technical strategies are disclosed with complete information which makes it easy to trade. The only success to make money in trades or in any profession is by following the discipline regularly. For reading more such blogs on strategies and other topics related to stock market read more from Trading Fuel.
