A sweaty stockbroker with a mobile phone clamped to one ear and waving his arms frantically with the other in the middle of a busy trading floor is how the general public used to perceive investing in stocks and shares.
However, these days, an increasing number of amateur investors are opting to dabble into the stockmarket, more as a casual hobby than with the intent of turning professional. That is why stock trading for dummies has become so popular
It is possible to make money from stocks and shares without years of experience, especially with the wealth of information which can be gleaned from the internet, but it is also very possible to lose significant amounts of money very quickly.
Put simply, shares are the same as owning a very tiny part of the company in which the share relates to. Companies need to raise cash for their organisation so rather than borrowing the money, they allow investors to purchase shares in the ownership, which pay out a dividend when the company makes a profit. A dividend is a payment that all shareholders receive; the amount received depends on the number of shares held.
Some people who dabble in the stock market wish to invest in a particular company and once the shares have been purchased, they hold on to them for a number of years.
However, there is also a vast majority of investors who hope to make shorter term gains from the shares and sell them as soon as they rise in price.
Stock Tradnig Basics
It is important to appreciate that trading in stocks and shares will not make you a millionaire overnight – no matter what Google advertisements may promise you. Investors should also understand that there will inevitably be losses and some days these will outweigh the gains. There will also most probably be more losses than gains to start with as you develop your trading technique.
Rather than plunging straight in, it is a good idea to study the market and understand the basics – a market with a general upward trend is known as a bull market and in these conditions riskier stocks tend to do well. A market which is heading lower is known as a bear market and this is when defensive stocks rise in value.
When you are ready to start trading, you will need to find a good stock broker to place your trades. There will be literally hundreds to pick from and the choice can seem overwhelming. However, stick to the basics and you won`t go far wrong – good peer reviews, low commission rates and helpful customer services are the key things to look out for.
Deciding what company to invest in can also seem like a daunting task with so many different stocks to pick from. Top traders in the market use a variety of tools to analyse the market`s movements and there are two distinct approaches; fundamental and technical analysis.
Why do you need to understand the basics of Stock Trading
Fundamental analysis draws more on environmental factors such as the economy, world affairs and political events whereas technical analysis centres around the notion that patterns in the market are cyclical and recognising patterns is the key rather than current affairs. In reality, many traders use a bit of both approaches.
Analysing the market also calls for the use of charts and tools to spot trends and movements up or down; many of these will be available for free online from your chosen stockbroker.
An alternative to conventional stocks and shares is the forex market, the trading of foreign currencies. Many traders opt to include forex in their portfolio as well as stocks and shares to spread the risk.
Nepal Stock Exchange website has free information feeds on their trading platform which will help understanding and making decisions on dealing in stocks and shares.