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“The Stock Market is a device for transferring money from the impatient to the patient.” – Warren Buffett
Today hardly anyone might not know about Stock Market which is also known as Equity Market or Share Market. A person can buy the stocks or shares which gives them fractional ownership of the business in which the stocks are bought.
The fraction of ownership is based on the number of shares the person holds. Do you have a question of how to learn fundamentals of stock market. Let`s discuss it here.
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1. What Is Stock Market
A stock market is a place where traders or stockbrokers can sell or buy bonds, equities or shares, and other securities. Most large companies list their company stocks on the stock exchange making the stock attractive to investors.
The stock exchange is also an act of guarantor of settlement and trades the stocks as “over the counter”.
Some of the large companies can list their stocks in different countries in the different stock markets. This would help to attract investors from different parts of the world. The stock exchange covers different types of securities such as fixed interest securities (bonds) or derivatives.
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All these securities can be traded as OTC. The stock exchange or market act as a platform to transfer the stocks or securities from the seller to the buyer. The stock or equities provide ownership of a particular company. The investors can be categorized as small individual stock investors and large investors.
These investors can be anywhere in the world. The sell or buy order of the investor shall be executed through the stock exchange trader. Various stock markets across the world are NASDAQ, NYSE, BSE, NSE, HKSE, LSE, SSE, etc.
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2. Types of Stock Market
The stock market conditions can decide the fate of the performance of the stocks. The different market condition is. The stock market can be categorized as Bull Market and Bear Market. These market conditions can be used to judge the stock market and its graph.
A Bull Market is a market during the rise. This market is generally when the conditions of the economy are favorable. A Bull Market is typified by a continued increase in prices. This market is demonstrated by rising in the prices of the companies.
Many investors jump to invest in the market with faith that the uptrend will continue over the long term. During the Bull Market, the country’s economy is strong and the employment levels are high. In Bull Market, the demand is strong while the supplies are weak.
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In other words, many investors are interested to buy the securities but very few are willing to sell. In Bull Market, investors tend to buy a variety of stocks. A Bear Market is typically a receding market. One could notice most of the stocks declining in their value.
A market is considered being a bear market when its value falls by 20% from the recent highs. In the Bear Market, the share prices keep dropping continuously. The investors believe that the same shall continue.
In Bear Market, the economy is very sluggish. The unemployment rates are high as the companies are laid off due to the fall in stock prices. In Bear Market, it is the exact opposite.
The demand for goods is less while the supply is high. In Bear Market, investors tend to sell stocks but can buy or hold the stocks till the turnaround of the market.
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3. Type of Stocks
Investing in the stock market is an important pathway and financial tool for investment.
1) Common Stock and Preferred Stock
The stocks in which common people invest are known as common stocks. The Preferred Stocks give preference to shareholders as compared to the common shareholders.
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2) Large Cap Stocks and Mid-cap Stocks and Small-cap Stocks
The stocks are capitalized based on the total worth of the shares of any company. Based on the total share capitalization the stocks are bifurcated as large-cap or mid-cap of small-cap stocks.
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3) Domestic Stock and International Stocks
The stocks can be categorized based on the location of the company.
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4) Growth Stocks and Value Stocks
Growth Stocks are the companies that have their stocks and profits growing at a pace. Value Stocks are a more conservative investment as these are mature and well-known companies.
5) IPO Stocks
IPO is the stocks of the companies which are raising a fund by giving public offerings.
6) Dividend Stocks and Non-Dividend Stocks
Dividend Stocks are the dividend payments given to the shareholders on a regular basis. The stocks which do not pay out dividends are the non–dividend stocks.
7) Income Stocks
Income stocks are nothing but divided stocks that giveaways dividends for the stocks.
8) Cyclical Stocks and Non – cyclical Stocks
Cyclical stocks are companies that are like manufacturing, travel, etc. Non-cyclic stocks are also known as secular or defensive stocks.
9) Safe Stocks
Safe stocks are stocks whose share prices make relatively small movements up and down compared with the overall stock market.
Other types of stocks are ESG Stocks, Blue chip Stocks, and Penny Stocks.
4. How Stock Market Open
The course of a session can be predicted from the early trading. This cannot be an assurance for an exact projection of the market however the information can help the investor to determine the day of the stock. From the same, the investor can predict about the stocks such as ranging, sedate, trending, or volatile.
With this basic information, the trader can prepare themselves for the rest of the day to trade the stocks for intraday trading.
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5. How Stock Market Works
The network of exchanges helps to operate the stock market. Various companies list their shares on the stock exchange through a process called Initial Public Offer or IPO. Investors or individual traders purchase the shares through various platforms.
The money invested by the investors is the money raised for the business through funding. The investors can sell or buy the stocks through the exchange.
The exchange tracks the supply and demand of various stocks. The supply and demand of the stocks determine the price of the security or the level at which the stock market participate or investors or traders are willing to buy or sell.
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6. How to Invest In Stock
The stocks can be purchased or sold through a brokerage account. Another way for the transaction is an individual retirement account which is IRA. These accounts can be opened at any online broker.
Then this account can be used for buying and selling the stocks. A broker is nothing but a middleman between the stock exchange and the investor.
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Conclusion
Investing in stocks of any company is a good financial instrument. While investing in any stock, the investor needs to look for the type of stock to buy, the broker to select, the brokerage to be charged, the market condition i.e. bull market or bear market.
Thus, investing with all due studies can help to get a good return on investments.
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