The stock market works in the same way an auction does. It is a platform where investors can sell and buy shares of stocks. These stocks are intangible properties of companies that have gone public. Stock prices are usually a reflection of investor opinions and are also affected by the earnings of the company in question.
Understanding the stock market can be quite overwhelming for a beginner. While most are aware of the basics, there are several concepts that are complicated. To that effect, here’s a guide to the basics of the stock market.
The procedure for making an investment
An average investor cannot trade in the stock market directly. They would need to hire a broker or a dealer for executing a trade. You can choose from the following types of advisors:
- Fee-only financial advisors: They charge a fee annually, and generally charge 1% of assets purchased as their commission.
- Online traders: There are online dealers who e-trade. They may charge a really small fee on a per-transaction basis.
- Banks: There are many large banks such as Goldman Sachs who provide stock trading facilities and guidance as well as financial planning.
- Small brokers: You can also opt for small brokers who simply execute orders and make investments on your behalf.
Mutual funds: A safer path into the stock market
There are many investors who prefer to buy stock through mutual funds. In this way, they have the chance to take advantage of fund manager’s expertise. Mutual funds are great for anyone making the first foray into the world of stocks. This is because a diversified investment in a portfolio of multiple mutual funds carries a much lesser risk as compared to putting all your wealth in one stock only.
Location of the stock market
Most beginners would wonder where the stock market is actually located. There are multiple stock market exchanges across the world. The two largest ones are located in the country. The New York Stock Exchange on Wall Street enlists nearly 2,400 companies. When their worth is combined, the value equals around $21 trillion in market capitalization. NASDAQ at Times Square has 3,800 companies on its listing. It has a market capitalization of $11 trillion.
A financial boon
The stock market works as a financial boon for many companies. They get to increase their financial capital by going public. This can help them grow and plan their short-term and long-term business goals. On the flip side, the two main disadvantages for a company going public are:
- Making the Initial Public Offering is expensive
- Company reports and profits are no longer private and reviewed by investors
While the stock market is a wonderland for finance enthusiasts, it runs on a lot of risks. Financial expertise is required to make big money here. However, with a little guidance, you can surely invest your money and earn a lot of money. Ensure that you get the right advisor so that you do not end up losing investments.
