Are you interested in learning how to invest in the stock market?
The stock market can be a great way to make money, but it can also be intimidating if you don’t know what you’re doing.
To help you get started, this beginner’s guide to the stock market will explain to you:
What is the stock market? How it works? How can you profit from it? So, if you’re a beginner investor looking to get your feet wet in the stock market, this guide is for you!
What is the Stock Market?
A simple way to think of the stock market is as a network of exchanges where traders and investors buy and sell shares of publicly traded companies.
Private companies list their shares on a stock exchange through a process called an initial public offering (IPO). The purchase of these shares by investors allows the company to raise capital from the public to grow its business. When a company is listed on a stock exchange, it becomes a public company, allowing investors to buy and sell shares in the company on an exchange that tracks stock prices.
The terms “stock exchange” and “stock market” are often used interchangeably. Exchange traders buy and sell stocks on one or more exchanges that are part of the overall stock market.
How does the Stock Market actually work?
To better understand how the stock market works, it is helpful to know that there are two types of markets: the primary market and the secondary market.
Securities are created on the primary market and companies list their shares through an IPO. Recall that an IPO occurs when a company first goes public.
Essentially a stock exchange, the secondary market is where the supply and demand for these stocks (along with thousands of other stocks on the market) are bought sold, and traded daily.
The stock market provides a safe and regulated environment that allows market participants to trade equities and other eligible financial instruments with little to no operational risk and with confidence. Stock markets, which operate according to rules set by regulators, function as primary and secondary markets.
The exchange has two important purposes. First, it helps companies raise money, called capital, from the public by selling shares that can be used to finance and expand the business. Second, buying shares in them gives investors the opportunity to share in the company’s profits.
An investor can benefit in two ways by owning shares. Some stocks pay periodic dividends (a specified amount per share) on a regular basis. This will give you a return on the amount invested in the stock. Alternatively, returns can be achieved through capital appreciation if the stock price rises.
Stockbrokers act as intermediaries between stock exchanges and investors by buying and selling stocks, and portfolio managers are professionals who create portfolios or collections of securities for their clients.
How can you profit from it?
Buy and hold In other words, a common way to profit from stocks is to use the buy-and-hold strategy of holding stocks and other securities for the long term (aka trading) rather than buying and selling frequently.
Invest in what you know Ideally, you should trade stocks that are related to what you know. For example, a pharmacist should consider doing business with pharmaceutical companies, and a bricklayer professional should consider trading stocks related to construction.
If you invest in what you know, you could be a winner because you may already have a little insight into the stocks and how well the companies behind those stocks are doing.
Consider reinvesting your profits to make money on the stock market The small amount you get in dividends may seem negligible, especially if you’re an early investor, but it’s responsible for much of the stock market’s historic growth.
How much you invest is entirely up to you and depends on how much money you make each month. Invest only 10–15% of your profits and use the rest to boost your business in other ways.
Bottom Line
The stock market is a mysterious and often intimidating place for those who are new to investing. But with the right research and education, the stock market can be a powerful tool for achieving long-term financial goals.