Investing in the stock market can be exciting and challenging at the same time. Stock trading is exciting primarily because of the enormous earning potential, and it is challenging due to the many unique challenges that lay ahead. This article provides a beginner's guide to investing in the stock market.
What exactly is a stock?
Before putting your hard-earned money in the stock market, you should first acquaint yourself with the basics of the stock market and stock trading. A stock can be simply defined as a portion or a percentage of ownership of a particular corporation. An individual who invests and and holds stocks of a particular corporation is called a stockholder or shareholder. A stockholder is entitled to have a portion of everything that a corporation owns including real properties, investments and future profits.
How does the stock market work?
Mastering the stock market and its trends and systems require years of research and study. The stock market is a very complicated and sophisticated investment pit stop. Nevertheless, investing in shares can be made easier by professionals in the field of stock market trading known as brokers. Brokers A broker is a third-party who negotiates in the behalf of an investor. A broker makes sure that the investor is getting the most out of his/her investment by minimising risk and capitalising on fluctuations in stock prices. When investing in the stock market, it is important to minimise risk by diversifying investments and by not going with the flow. From the words of investing genius Warren Buffet, “be greedy when others are scared and be scared when others are greedy.”
Different types of stock market investors
There are three basic types of investors depending on how long they hold their investment, namely the long-term investor, the swing trader and the day trader.
Long-term investor From its name itself, a long-term investor holds an investment for longer periods of time, usually ranging from a couple of years to ten or even 15 years. Normally, long-term investors are people who are investing for their retirement or for their child's college fund. Swing trader The swing trader is an investor who holds stock investment for a couple of days to a week, hoping to capitalise on short-term fluctuations in stock prices. Day trader Lastly, the day trader is an investor who holds stock certificates only during trading hours. A typical day trader earns from the small changes on the prices of stock during the day.