Aug 28, 2013

Basics of Stock Markets: The A-Z Quick Sheet for a Beginner-Level Investor

Several individuals wish to engage themselves in stock market and invest their money in stocks, but they don’t have an idea about Stock markets and how they work. In fact, there may be lot of info available to you, but they may all seem confusing without actually knowing the basics. This post aims at educating the beginners about the basics of stocks market. Read on to enlighten yourself about the A-Z of stock market. 

Getting a Better Picture

First of all, it is important to get a clear picture of what stocks are! Literally, a share of stock is the ownership of a firm. When you purchase a share of stock, you are eligible for a small fraction of the earnings and assets of that company. The assets here include everything owned by the company (trademarks, equipment, buildings) and earnings refer to all the money the firm gets in from trading its services and products.

As a beginner, it is quite evident that you may wonder why a firm would want to share its earnings and assets with the public. This is because the company needs money. Firms have just two ways to raise money to expand the business or cover start up. It can either sell stock (called equity financing) or borrow money (called debt financing).

Generating Funds with Stock Selling

The downside of borrowing funds is that the firm has to repay the loan with interest. However, fewer strings are attached with stock selling. The company need not pay interest or there is no need to repay the money. Equity financing gives out the risk of its business to a large group of stock holders (the investors). If the company loses, the owner does not lose all his money, but rather loses many smaller parts of other individuals’ money.

Understanding the Fluctuations

When you plan to enter the stock market and start observing things, you may often hear the work stock prices. This is one thing that you need to know about before investing in the stock market. Stock price refers to the price that a particular stock sells for and it is fixed by many market factors like trading trends, economy condition, technical or financial reports of a company, and spending trends.

Knowing the Market Capitalization

Next, you need to stay aware of what market capitalization is. It is the value of the stock or the company that is being offered. If you want to assess the market capitalization of a specific stock or company, use the formula: number of outstanding shares X the stock price

Once you are thorough with the basics, you need to know how to buy or sell shares. In order to purchase a stock, you need to set up some type of investment account. In several cases, you need to open a new investment account with a stock broker or open an online investment account if you want to proceed without a stock broker’s assistance.

Before You Start Trading

Once an account is established, you have to fund it before making a purchase. After funding, you can enter your stock purchase order. Once you are ready to trade shares, you will have to enter the sell order through your online account or tell the stock broker that you wish to sell few shares.

Learning how the stock market works is just the beginning and experience is what will teach you practical things in due course of time.


About the author: Tobias Wilhelm is the owner of a stock market website, where he tries to educate the stock investors about stock markets and how they work.

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