Understanding the stock market for beginners as the name suggests, so is the purpose of this post. We will understand and learn the depths of the stock market here.
Fundamentals of the stock market like what is the stock market and how does it works? How are companies listed in the stock market and why are they listed?
Along with this, we will also learn about the essential words of the stock market, which you must understand and learn before investing in the stock market.
Entering the stock market without basic knowledge can be fatal for you, it can destroy your hard-earned money.
You start with the objective of learning about the stock market and as soon as you are confident that you can now make a profit in the stock market, then you can start your investment in the stock market on a large scale.
Table of Contents
Stock Market Basics
In this article, we will go ahead by learning the fundamentals of the stock market. Here we will try our best, that a beginner should know which stock market terms and concepts before buying shares in the stock market.
The stock market is a very good option to increase your foresight as well as develop your ability to understand business and read statistics.
If you become an expert in this then it can prove to be a very good way of earning money. You have to understand the depths and fundamentals of the stock market very well.
The stock market is made up of exchanges such as the New York Stock Exchange, Nasdaq, National Stock Exchange, and Mumbai Stock Exchange.
Stocks are listed on one or more exchanges that bring buyers and sellers together on a single platform and The stock exchange is directly related to the supply and demand of each stock.
But this is not a typical market where you show up at the grocery store for what you need and you buy it. This is a niche market where individual traders are usually represented by brokers, nowadays they are also called online brokers.
Individual traders have to buy their stock trades through a broker. This is how individual traders become related to the exchange.
Why do companies list on the Stock Exchange?
Listing of companies on the stock exchange has many benefits, some of which are as follows.
- Raising capital for growth – Most companies are at a stage where companies need capital for growth and expansion, so the company can go public and raise funds for growth and expansion as well as get listed on the stock exchange, enhancing the credibility of the company.
- Liquidity – The company goes public as soon as it is listed on the stock exchange, thereby making the shareholders share the risk and profit by transacting in the company’s shares.
- Transparency and Efficiency – The boot and management team of any listed company is accountable to its shareholders. This means that listing brings transparency and efficiency to the company’s operations.
- Brand awareness – An advantage of the listing is that the brand gets publicity and the public gets to know about what the company does. Both the brand value and people’s confidence in the company increase because from the time of listing, the regulator of every country directs that brand to run according to its rules and regulations.
How do companies listed in the stock market?
You must have heard about the New York Stock Exchange or Nasdaq Exchange. The stock market works through a network of exchanges.
A company can be listed on one or more stock exchanges, Companies list their shares of stock on an exchange through a process called an initial public offering or IPO.
The company has to fulfill certain conditions as per the guidelines of the regulatory firm of the respective country before launching the IPO.
Only after that, the company can launch its IPO, Investors can then sell and buy these shares among themselves and the stock exchange tracks the supply and demand of each listed stock.
In the stock market, A share is a fraction of equity or stock that represents the ownership in issuing company in proportion to the number of shares someone has.
» Interested to learn more: Read our full explainer on the What are shares and types of shares? for more detail.
Shares represent the fraction of ownership in a company, when an individual investor has bought a share of a company, he becomes one of the owners of the company.
In proportion to the total shares of the company, the individual investor holds his own stake in the owners of the company, corresponding to the number of shares purchased.
How buy and sell stocks
If you want to understand the stock market in a practical way, then you should know how to buy and sell shares.
For you should have a Demat account, just like you keep your money in a savings account, in the same way, shares are kept in a Demat account.
Looking at today’s technology era, selling and buying stocks is no longer a complicated task as before, just a little knowledge and you can easily buy and sell your favorite shares in the stock market.
To buy or sell shares first you need to open a brokerage account with one or more brokerage firms then you have to connect your bank account with it.
After connecting your bank account, you have to add money to your brokerage account to buy shares. In the last, the brokerage firm adds shares (the same stock or quantity as you purchase) to your brokerage account.
» Ready to know more? Read our step-wise full summary How do you buy a stock? for more details.
If you are new to the stock market, and you are buying a stock for the first time in the stock market, then along with buying the stock you should.
Before buying stock, some things have to be taken care of like stock research, and stock future, buying shares for the first time may seem a bit awkward for beginners or new investors, but it is an easy process.
» Ready to learn more? Read our detailed tutorial on How to buy stocks for beginners? for more detail.
Novice investors should keep in mind that when they should sell their stock, they should sell your stock, it depends on their investment strategy, how long they invest and how much risk they can bear.
» Ready to know the process? Read the article How to sell stocks? for more detail.
Once you have decided that you want to sell the stock, then you have to decide through which type of order you will sell your stock like a market order, limit order, stop-loss order and stock limit order.
Then submit your trade ticket by applying for any of these orders from which you wish to sell your stock.
How to invest in stocks for beginners in 2023
Investing in stocks is easier and more accessible nowadays, with newbies open to accounts through brokerage firm websites and mobile apps with a little amount of money.
Owning shares in a company represents an ownership stake in a company as a shareholder.
Before investing in stock, the first time, You need to follow some points for a successful investment like checking the company’s financial statements very carefully.
If financial statements are good and you understand the company’s business then you have to check the possibility of long-term future growth of the company.
Also, you can check the technical chart patterns of the company if all are in good then you can invest in the company and buy stocks of that company.
How do stocks work for a company
It’s a genuine question, how do stocks work? Basically, companies sell their shares to raise money for business, companies can use this money for different tasks such as paying back the company’s debt, increasing the company’s operations, investing in the company’s growth or Adding a new product or product line.
Once the stock of a company enters the stock market, the stock is sold and bought by the investors.
If you decide to buy the stock of a company, you cannot buy it directly from the company, but you can buy it from another investor who wants to sell this stock.
If you want to sell the shares of a company, then you can sell them to any other investor who wants to buy those shares.
» Ready to learn more? Read our detailed tutorial on How do stocks work? for more detail.
In this way, the companies give small ownership of the company to the investor.
In exchange for the stock or in simple words, the Investor’s ownership in the company is equal to the shares purchased and the investor’s money is used for the growth of the company or other initiatives.
Earning from stock market
As we all know, Firstly, companies raise money directly from investors through an initial public offering (IPO) to enhance the company’s business and go public.
After the IPO investor buys and sells shares from one another without any interference from companies on their agreed price.
There is three main way to make money from the stock market, Frist is to Buy at a low price and sell at a high price to make a profit ( Sell the stock at a profit ).
The second invest in high dividend-paying stocks, and companies share the profit with investors as the ratio of their own shares (Collecting dividends).
Third Invest in stock for the long term as the stock price increase your portfolio value is also enhanced.
Ready to earn money from the stock market? Read our dedicated article How to make money in stocks? for more detail.
So if you understand the business you can earn money from the stock market and you can choose the stock market as your career option.
You have to have a good habit of learning new things and you have to be good at numbers also, the stock market is daily changes due to some news and action taken by the government and companies.
Basics of the stock market
Every stock investor should know the basics of the stock market before entering the stock market because the stock market is not simple as the newbie think.
The stock market is a complicated system without basic knowledge of the market, one can lose his all hard-earned money in stock investment.
Next, we will discuss some basic terms of the stock market like market cap, p/e ratio, ROCE, ROE, book value, share price, investors, traders, sectors, balance sheet, net worth, assets, shareholders, outstanding shares etc.
These terms are the basics of the stock market, Which is important for every stock market investor and without understanding these basic terms, the investor can never choose the right stock.
Let’s start to learn basic terms of the stock market below ->>
Companies on the stock market fall into one of these three categories Small Cap, Mid Cap and Large Cap.
Here market cap means market capitalization. Market capitalization shows the aggregate valuation of the company, By which we get to know the size of the company.
» Ready to learn more? Read our detailed tutorial on Market Cap Meaning.
The formula of Market Capitalization –
Market Cap = Market Price of one share * Number of outstanding shares
Let us assume the price of ABC Company one share is = $2000 and the total outstanding shares of ABC Company is 100000. So the Market Cap of ABC Company is = 2000 * 100000 = $200000000.
Stock Market Index
In the stock market, the Stock index is used to measure the stock market performance or we can say, the Stock index is a subset of the stock market.
The stock index helps investors to take decisions in investment by comparing current stock price levels.
» Ready to learn more? Read our detailed tutorial on What is a stock market index? for more detail.
Each stock market index has its own system to calculate the index value which is maintained by the index provider. The calculation of the stock market index depends on what methodology is used to build that index.
“What is a stock exchange? Role of the stock exchange, Functions of stock exchange? Securities in a stock market? Public companies sell their stock through the stock exchange. The bull market and bear market, stock market crash and correction, what is portfolio, the importance of diversification, how to learn stock market -read books, follow a mentor, take online courses, get expert advice, analyze the market- Technical analysis, fundamental analysis, future growth, what is listing shares, primary market and secondary market, IPO, Stock market Supply and demands, stock market indices, largest and oldest stock exchange, what is a stock market correction, what is a stock market crash, what is a stock market sector”
Key things to know about stocks
- A long-term buy-and-hold investment is the best for investors.
- Park your money for the long term, and invest in high dividend-paying stocks.
- Understand the stock markets basics like bull and bear markets, crashes and corrections in the market.
- Research companies like what companies do, where and how to do it, If you understand then make the decision to buy shares in companies.
Do companies benefit from listing in the stock market?
Yes, there are many benefits of getting a company listed in the stock market the company needs money for its growth and expansion which it can raise from listing. The liquidity of the company increases, In which the shareholders are the partners of the company in the profits and losses. The company’s transparency and efficiency increase, as the company’s board members and management team are accountable to the company’s shareholders and the company’s brand awareness also increases.
Why do companies issue shares?
The company has to issue shares because the company needs money for the growth and expansion of its business. Expansion such as starting a new project by the company. Issues shares from the company so that it can raise money from its investors and invest it for the growth of its business, some investors buy shares of the company from the primary market and most of them from the secondary market.
What are stocks?
We also know stock as equity. If we add a stock to our portfolio, it means that we have added equity to our portfolio. A stock is a security that represents the ownership of a part of a company. The owner of stock has equal rights to the assets and profits of a company in proportion to the number of stocks he owns.
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