The stock market can be a bit of a jungle for beginners to the arena. So, if you are considering dipping your toes in the sea of stocks, there are some tips to read up on beforehand. This guide provides some details on what you should know before you start investing in stocks and how to go about it in the right way.
What is a Stock?
A stock is a virtual slice of a company that can be bought, traded, and saved by any individual on the stock exchange market. They exist as a method for raising money for companies, while also making potential money for investors.
Understanding the Terminology
Share: An equity portion of a company.
Dividend: Monetary (or other) reward provided by a company to its shareholders.
Yield: How a return looks over an amount of time. This is usually represented in a percentage figure.
Understanding the Stock Market
To understand the stock market, let’s take it down to a simple analogy. Imagine all the stocks and shares sitting on shelves, like products in a supermarket. Except, these shelves are virtual. You come along and browse for the best value, with the most attractive dividend and yield rates.
Useful Universal Rules
- If you want a high yield return, acknowledge there will be a higher risk involved.
- Try to branch out in terms of what you invest in – mix up the bag in order to lessen the risk of putting everything into one company.
- Keep a constant eye on your stock portfolio. Things change rapidly and constantly not just within the stock exchange but with personal circumstances too.
- Try to keep a level head when things look like they are going south. Things change quickly and may pick back up again the next minute. Try not to just copy the crowd mentality.
Find a Good Online Platform with Credible Intel
There are thousands, if not more, websites out there that provide information about stocks and shares, a space to invest in them, and a market exchange model. However, not all of them have credibility and lots should in fact be avoided completely. Certain sites provide comprehensive information on things such as how to leverage high dividend stocks, which is a useful piece of knowledge to possess as it can enable smarter decisions and investments.
Understanding the Risk
The associated risk with investing in a trading stock can be high. There is money to be gained but there is also, unfortunately, money to be lost. Some investments can go downhill rapidly, costing you everything you put down, whereas some investments can soar and excel, making money beyond expectations. No rule dictates where a stock will head, as there are too many factors that determine its trajectory. Therefore, accepting a level of risk is essential – if you can’t do this then this is not the business for you.
Read: What are the risks in stock trading?
Be Realistic
Take a long, hard look at your financial situation. This method of making money is essentially a gamble as the odds and outcomes are neither fixed nor finite. It can be a money-losing exercise if approached incorrectly or if a patch of bad luck is hit. Can you afford to take this risk? Until investments start bringing in returns, there is no immediate monetary gain to be had. These investments also might flop and fold.
As a beginner is it vital to research the market before committing to stocks or shares. There are constant fluctuations to be observed and respected, and companies change parameters as and when suit their business needs. Therefore, this risky business should not be taken lightly, but considered with the weight that it deserves.