If you have not traded any stocks before and thinking of becoming a stock trader, there are many things to consider before you put money in stock trading. In the stock exchange there is a two way action – the bidders compete with each other to purchase shares at the lowest possible price. Before I go into other basics of stock market let me define two most frequently used stock market terms, brokers and jobbers which are crucial for understanding the stock market properly. The investor must, therefore, employ the services of a registered stockbroker for buying or selling shares in a stock market.
However, the brokers merely act as agents for their clients and deal with another class of stock exchange professionals known as jobbers. Too strict adherence to limits can result in an opportunity being missed, especially when the market is changing rapidly. Therefore, in a bull market it is advisable to avoid strict buying limits if you want to ensure a purchase, otherwise you could be trailing a share for days together without buying it. Similarly in a bear market it is wise to place selling orders at ‘market rates’.
If you stick to a selling limit and the market plunges, you may lose an opportunity to sell your scrip that day. On the question of stock investment the most important knowledge beginners need to have about share market is how to select scrip worthy of investment. Going by the share market basics such scrip should prove a good buy, provided you are patient enough.
Therefore, going back to the share market basics the first step for stock investing is to identify an industry or industries with growth potential and to study the fundamentals of different scrip under that ‘industry-group’. Understanding the stock market fundamentals is essential for a first timer when it comes to acquiring the crucial knowledge about – how to decide when to buy the shares. Of course, going by the basics of share market there are a few ground rules in this regard. Once this phase has ended and the market has stabilized, start watching the movement of various equity indices from financial news papers. Ratio is helpful in understanding whether a stock is overvalued or undervalued.
For this it requires understanding the stock market thoroughly with years of practical knowledge about share market investment. My other hub about how to make money in the stock market shows how ‘timing’ of purchase and sale plays a crucial role in making quick money from stock investment. In a nutshell, investing in share market is not as complicated for the first timers as it sounds once they acquire the basic knowledge of how the stock market works. I’ve got to say this about owning stock in general, because this is the excuse the elite use.