Stock Exchange: some basic concepts
These days it is so common to trade the stock market that most people are quite familiar with it. It is a topic of conversation almost anywhere that you go. This is a reflection of just how many people are invested in the market. Even if you don't have money invested directly things like your pension fund are also invested in it so you will want to make sure that you understand it.
The stock market is a fairly simple thing, at least in theory. It is a place where you can buy and sell shares in a company. That means that you are able to own a very small piece of each company that you buy a stock in. As the company grows and becomes more profitable its value should increase. The result should be that the value of your stock should increase. At least that is what happens in theory, in practice things are far more complicated which makes it much more difficult to make money on the stock market.
One of the first things that you will notice if you get involved in the stock market is that the price of stocks may go up or down for no reason. The company may announce good news like higher profits and then immediately see the value of its stock decline. The reason for this is that investors buy and sell based on their expectations for the future. In a lot of cases these will make no sense and the stock will do things that were unexpected. This is what makes the stock market so hard to predict, you have to deal with the mass psychology of millions of people.
Because it is so hard to determine what the stock market is going to do people have come up with all kinds of strategies to decide what they are going to buy and sell. Some of these are quite effective while others don't work at all. In truth there are very few strategies that will work over the long term. In most cases your best option would be to just by an indexed fund hold onto it. This will allow you to own a small piece of the whole market which is usually safer than buying individual stocks.
If you are going to trade the stock market you are going to have to get a broker. This is fairly easy to do these days because of the huge number of online brokers. Your broker is the one who will actually make the trades on your behalf. Before you start trading you are probably going to want to take some time to think about your strategy and how you are going to trade. This will put you far ahead of most traders who really have no plan at all. The most important thing is to choose your own trades, do not rely on stock tips from somebody else, they are rarely worthwhile.
