Things to know before investing in the stock market
Many of us wish to be rich and think of investing in the stock market to get easy and high returns. But its not that easy, everyone looks up to Warren Buffet and thinks that he made easy money by just investing in the right place at the right time, but what they don’t realize is that he had wait a long time before getting a good return. He had to calculate and think if his investment was going to give him a profit or not. He also had taken a huge risk of losing most of his hard earned money.
So what is stock market? Stock market is the aggregation of buyers and sellers of stocks, which represent ownership claims on businesses; these may include securities listed on a public stock exchange, as well as stock that is only traded privately. I simple words, it is a place where the potential investors of a company invest their money in shares and look to earn a profit, while the company gets more capital.
What is trading? Trading is the buying or selling of shares between buyers and sellers. Basically, when a shareholder sells his shares to a buyer it is known as trading.
A shareholder is a person who owns shares of a company.
That’s the basics of stock market, now let me tell you what you need to know before investing in it.
1) Start low
When you start trading, invest a small amount in it. You cannot guarantee that it is going to earn you profit. Even if you do incur a loss it will be small amount rather than investing a lot and losing most of it. Trade with a small amount and then gain some experience and then think about investing a larger amount.
2) Invest in different sectors
One of the things that one needs to know that he has to invest in many different sectors. There is a famous saying, “Do not put all your eggs in the same basket,” the same concept has to be applied here. Invest in pharmaceutical sector, electronics sector, IT sector, refineries etc. Invest a major portion in a sector which you know a lot about. For example if you are an engineer then invest in the IT sector or maybe the electronics sector. When you invest in different sectors, when one sector incurs a loss some other sector might be in profit and helps you to not lose a large part of your investment.
Before investing in any company do a lot of research about its products and the price fluctuations in the past. Check its financial statements to know if the company is in loss or making a profit. Do some research on the news about the company in the past 2 or 3 months. This helps you to get an idea about the way the company works and how it has performed in the market.
4) Don’t invest based on other peoples opinions or advice
Never invest your money in a company based on what others are saying. This is one of the most important things to know before investing in a company. No one can say how a company works and when it might help you gain or lose money. Never be influenced by someone else he is an expert in trading and has earned a lot of money and knows what he is doing.
5) Don’t invest your money based on a single days performance
The stock market is very unpredictable and you cannot say what is going to happen next. For example a share of a company whose price had increased by 5% in the morning might have fallen 10% in the afternoon. There are sometimes when a particular news might cause the price to increase rapidly, but this does not last for a long time. The price usually comes down after a short time or maybe after a day or two. Invest only after doing a lot of research and when you are confident.
One of the reasons why many traders lose their money and quit is because they do not have patience. The stock market requires you to have a lot of patience. You cannot expect your money to double overnight. It takes a long time to increase in the value. Many traders see that their stocks are not performing well and giving them a loss and hence they sell it off only to lose their money. Sometimes even though there is a loss one has to wait for some time so that the prices increase and give them a profit. It normally takes a person 6 months to a year to be good in trading in the stock market.
Investing in the stock market is very risky. Risk is something one has to take while investing in the stock market. The higher the risk the greater the return. But never take a huge risk through which you can lose almost all of your money.
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