How do you make money in stock market the right way and live a happy wealthy life my friend, here is your answer.
How do you make money in the stock market?
The importance of Stock Market
The answer of the question is the reason for existence of all good maintained vegetable shops. The same is the case with the old money making stock market. You can’t purchase
stock of a good highly successful company directly from the company itself, a mediator is must and he is required so the mediator here is the stock market.
Whenever someone buys a stock the other person sells it with a loss or profit. There is
a link which connects both of them in this money making game; the stock broker here acts as the link.
Learning From the History of Stock Market
Everything has a bad and good past, the same is applicable to stock
market also. So, before learning about “How the stock market works”, my friend let’s know
about its glorious history.
The Merchants of Venice are mainly credited with the trading of
government securities in the early 13th century. But the first genuine stock
market in factual reality arrived in the year 1500. Antwerp was the very first and amazing commercial centre of Belgium at
that time.
The main means of transportation at that point of time was
through good old waterways. So, they had to send it through the some good heavy ships. As the demand and the business grew they started
financing more than one ship, so that if one ship faces some kind of accident
then the others will execute their trades and the business never stops.
The success of this basic and not so unique idea led to the formation of similar
charters to other businesses in England, France, Belgium and Netherlands.Good old Coffee shops were generally used as trading floor at that point of time, where
handwritten sheets of paper were considered as the valuable stocks and they were the ones that were traded.
Learning How does the stock market actually works
Now this is basic the term stock market is used for the market where stocks
are bought and sold. The stock market can also be referred to as the major
indices of the money making market.
Like US stock markets like New york Stock Excahnge and Nasdaq. Both the markets
have their own index, which tells about the direction of market. The movement of the market is
judged on the basis of its major index.
Understand the working of Stock Market
To make money in the stock market understand that the operation of stock market is quite similar to that of a
vegetable shop. The different vegetable available are the ones that signifies the different
company and the different customers are actually the main traders.
Everyone visits there to buy all the good vegetables. Although he/she
will buy the vegetable only when the price seems to be appropriate and under his/her purchasing power. Now, the
trading price of the vegetable depends on the capability of the purchasing power of the customer.
This is somewhat the case in the daily and yearly trades of stock market. A person buys
a stock only when the price seems to be appropriate and within his purchasing power, and the same is with the
seller. Although there are cases of bad loss, which arise due to the inefficiency
of the individuals to understand what stocks are good and what are bad.
What are Stocks?
Note this down in your head a stock (or share or equity) is a kind of financial object which
signifies the ownership value in a company. It also represents a portion of the claim of
the buyer, on the overall assets and base earnings of the company.
The base of a Stock ownership points out the slice that is a part of the company which it mainly equal to
the number of stocks that are held as a proportion of total outstanding stocks of the
institution. For example lets consider if an organisation or a person actually holds a total of 100,000 stocks of
a company which has a total outstanding of around 2,000,000 stocks. This means an
ownership stake of 5% belongs to them which is just pure mathematics.
Types of Stocks
The overall category of stocks is mainly divided into two
types:
1. Common Stocks:
The basic and most used term equity is considered as the synonym of this type.
As the common stocks have much greater market value and trading volumes in base comparison to the preferred stocks. They also carry the right to voting power, which enables
the holder of these common stocks to cast vote during the corporate meetings, such as election of all company board of directors, appointment of auditors.
They are again further divided into different types on the basis of their
voting rights. Conservatively one share has the power of one vote. But, in some cases there
are companies which provide more than one vote per share.
2. Preferred stocks:
They do not have any type of voting powers attached to them. The logic
behind their name is the respective and good common preference they get over the common stocks,
in cases such as dividends, assets in the event of a company liquidation.
Why does the company issues stocks?
Only main requirement of any business is having an idea that is special right.
And the secondary necessity being the availability of good capital to execute that idea. Imagine the
case of giant tech firm Facebook, which was started almost a decade ago. The pace of its
growth has been very high all due to presence of good capital.
As the good growth at such a high pace requires access to some kinda massive
capital. The transition of idea into a business requires leasing out a space for an office or
factory, buying equipments, hiring all the employees, and many more. All these things
require good amount of money.
So there are basically two main ways of raising capital for a business.
The first way is of actually selling shares and the second way is of the good old fashion of borrowing money. The
option of debt financing or borrowing money is actually not easy at all for a small or big start-up as it
lacks enough assets to be pledged.
Therefore equity financing or selling shares is the more commonly preferred and practiced option for raising capital. The entrepreneur can initially source
funds from his own personal savings, friends or family. But as the capital requirement
widens with the growing time, he/she has to turn towards the investors or the good money providing venture capital firms.
When the company gets totally established, it requires more amount
of constant capital. This capital can be raised by selling all the premium shares to public through the practice of Initial Public Offering (IPO) in the stock market.
This shifts the status of the company from a cold and giant private firm to
a publicly money making traded company, whose shares are held by numerous members of general public.
The IPO also provide the early investors an opportunity to easily cash out their base stakes.
Why do stock prices fluctuate?
As the money making stock market is constituted of millions of investors and
traders, who acquire different mindset about the common value of a stock. And thus the
price also differs for everyone all the time. The individuals or entities to convert their
intentions into action by buying and/or selling stocks, this becomes the reason
for the fluctuations in prices.
The stock market is actually a very great example of the laws of supply
and demand that works in strictly real time. For every stock trade there has to be a common buyer and a quick seller. It is due to the basic rule and follow up laws of supply and demand that when the
number of buyers is more than the number of sellers, the price of the normally particular stock moves up quick and vice versa.
And this is what stock market bulls do they hike a price of a stock and the bears bring down the price of stock.
Listings of Stock Market Indices
The main and most sorted stock market index is measure of performance of the
stock market. They tell about the overall direction of the money market. The major
indices around the globe are listed below:
FTSE INDEX (UK)
CSI INDEX (CHINA)
CSI 300 INDEX (CHINA)
S&P 500 (USA)
NASDAQ (USA)
TSX COMPOSITE (CANADA)
NIKKEI 225 (JAPAN)
SENSEX (INDIA)
NIFTY (INDIA)
CAC 40 INDEX (FRANCE)
So, this is the basic and most common way how the stock market works.
Features of Stock Exchange or Stock Market
- It is a main voluntary association of all the persons desirous of dealing in securities
- Stock exchange is a good healthy voluntary association , its membership is not open to everybody
- In a stock exchange, only the members of the stock market can deal in i.e., buy & sell securities.
- All the members of a stock exchange can actually buy or sell securities either as brokers for & on behalf of their clients.
- It is an open and organized market
- It is a healthy securities market
- It is an important constituent and a good part of capital market i.e., market for long term pure finance
Types of Stock Investing
There are in general three types of stock market Investing!!
- Growth Investing
- Dividend /Income Investing
- Value / Growth Investing
An investor who is a good worker is mainly focused on fundamental factors would say to checkk the below points :
What is the projected Stock earnings growth
What is the value of Company Market capitalization
How One Can Invest profitably
How does Company’s cash flow look like?
How are its EPS (Earning per share)
To invest it is mandatory for every individual who want to invest in stock
market, they all need Demat and Trading account, in market there is a huge abundance of stock
brokers available .
We hope your journey in making money from stock market is happy and fruitful.
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