Understanding The Stock Market And Investment Guide

We look at how to invest in the stock market efficiently.

This guide looks at how to get started in the stock market and make gains on your investment. Like anything in finance, the first step is research. Researching a stock will reveal wether its current price is high or low. If a stock is low then it is good to invest if you think the stock will rise again.

Understanding The Stock Market

Learning to become a stock market trader is less time consuming than expected. It takes years of experience to master the investment landscape, although you can learn the stock market basics in a few months. The best way to learn stock trading is to practise, wether it be small investments or large ones, the best trading education you can receive is from experience.

What Is A Stock Or Share?

A stock represents a piece of a company. When a company wants to raise money it will issue shares. The shares of a company will be issued in an IPO (Initial Public Offering). The worth of a company will dictate how much the shares are sold at. The money raised from the selling of shares will be kept by the company issuing the shares.

The shares will be bought and sold on the stock market, the company will no longer make money off the trading. The only money that the company makes through shares is through the IPO.

What Is A Bond?

Bonds represent debt owed by a company. A bond will get issued, then the money received in turn is a loan. Like any loan, it must get paid back over time and the company is responsible for paying it back. The buyer of a bond is the lender, if you buy a government savings bond then you are an official lender to the federal government.

The benefit to buying bonds is that the company that issued the bond must pay the investor back their money with interest. The interest rate associated with a bond is referred to as the bond’s yield.

What Is A Derivative?

Because it is difficult to fix a set price on stocks derivatives instruments are used. Using these instruments, you can trade in the future at a price you set today. So, you enter an agreement to buy or sell a share (asset) at a fixed price.

What Is An ETF?

An ETF (exchange-traded und) is a security that tracks an index, bond or commodity. It is similar to a mutual fund but it traded like a common stock on an exchange. Because you can trade an ETF it doesn’t have a net asset value.

How To Start Trading Stocks?

First step to building a portfolio is deciding on what stock you are going to buy. Although, buying a single stock is much riskier than large groups of stocks called a ‘mutual fund’. You will see your money fluctuate dramatically if you only own a few stocks, which is risky, because if the stock tanks you will lose money until it goes back up which may take weeks or longer.

If you already have mutual funds in your portfolio then a few individual stocks won’t hurt, as long as they are performing well. Although, with great risk comes great reward.. with individual stocks there is the possibility to make huge gains. This is important to remember when understanding the stock market.

When buying a stock you are partial owner of the company you invest in. Any changes within the company (internal or external) can result in stock price changes, leading to you gaining on your investment or losing money on it. As long as you invest in a company with healthy profits and future innovation then there upside gain.

  • Where to start? The best place to start looking for potential investments is on your own doorstep. Start researching household brands stock chart, this will help you put the earnings report into context.
  • Don’t read the headlines. If you buy into a company which is yet to make a profit, then the stock price may not make any gains at all.

Valuation and price. Look for stocks that and undervalued and have the potential to grow. A cheap stock is when you pay less for each dollar the company is worth. The price-to-earnings (P/E) is the measure of the stocks earnings in relation to its stock price. The lower the stock price in relation to earnings, the more potential there is to make gains.

However, when you see a cheap stock price it may be because the company is not performing and may even be closing. Some stocks may be more expensive because they have higher growth potential, in which case it may be better than a cheap stock.

Things To Avoid.

  • Don’t buy a stock just because its price has fell. The stock price may have fallen for a good reason and the company may never recover, so the stock will keep plummeting. Make sure you know that it will rebound.
  • Don’t get sentimental. Just because a stock has been increasing for 52-weeks doesn’t mean that it will continue on that path forever. Have a criteria of when its time to sell. So set a stop point so you can sell once the stock price reaches a certain price.
  • Try not to follow everything market analysts say. Market analysts cannot predict the future so don’t follow their advice without your own research.. its your investment funds, not theirs.

How To Get Started In The Stock Market

It is important that you understanding the stock market before you start trading. Once you learn the stock market basics you can trade more accurately and increase upside gains. Understanding the stock market doesn’t stop after you learn the terms. Trading platforms are the most important tool to trading. A good platform has low trading fees and good integrated charts so you can research the asset without leaving the platform.

What Platform To Use?

eToro is a fast growing investment broker. eToro was the first “social trading” platform, where people can trade socially. This means that investors can share their trading knowledge and you can follow other investors trades and copy them.

Recently, eToro added cryptocurrency to their platform, so you can even trade cryptocurrencies. eToro boasts a user-base of 4.5 million traders, so there is huge amounts of information to read.

eToro has a simple interface which is easy to use. Our favourite feature is that eToro offers a “virtual portfolio“. On the virtual portfolio you can trade stocks with virtual funds that do not effect your “real life” funds. You are given $100,000 virtual funds to invest in whatever company you want. If you are a beginner this is great because you can learn stock market basics without risking your actual funds.

Traders can trade many types of asset on eToro, by selecting the ‘Trade Markets‘ option on the menu you can see all the assets available. You can trade Cypto, ETFs, Stocks, Indices, Commodities and Currencies.

Minimum deposit – $200 (£140)

Minimum trade – $25

Mobile App – Yes