Stock Market Basics And Techniques
Investing in the stock market is very complicated and can be
quite risky if you don't know what you are doing. It is not
prudent to simply pick a stock to invest in by deciding if you
like the company name or not. You should research the company
before you risk your money.
Some basic facts you should learn about any company you want to
invest in are included in the companies prospectus which you
should read thoroughly before spending a dime.
1) Revenue. This refers to the amount of money the company
makes. Although some companies that are still in the early
development stage have no revenues to offer, many of the
companies that have been in the market for years make use of the
revenues to cover some losses and other costs.
2) Earnings. This refers to the money the company makes. Aside
from revenues, the earnings are the money that would not be used
in covering expenses. These are the extra money the company
makes. Companies with large earning have an advantage in the
stock market because investors examine the earnings made by the
company they are about to buy stocks on.
3) Debt. This refers to the money the company owes in many ways.
Because the company is in debt, the money they have is for
paying up for the debit alone. Buying stocks from these
companies would be risky because of the instability of the
company.
4) Property. This refers to all the assets (money, stocks, and
all businesses they own) of the company. Knowing these assets
could give you an understanding of the company's position in the
industry. If the companies have significant properties in their
hands, you could safely trust their background and immediately
buy some of their stocks.
5) Financial responsibility. This refers to the account of the
companies that they need to pay out. Meaning, if the value of
their financial obligations are low, the company is not in
danger of becoming in debt. Examining the company's liabilities
and comparing it with its assets could help in determining if
you are ready to buy stocks from them. Make sure that the assets
of the companies are always higher than the financial
responsibilities they need to make.
Once you have researched a company, there are a couple of
different methods of investing. You can of course, buy the stock
and wait for it to go up but what if the company isn't public
yet? This means there is no stock to buy until their IPO or
initial public offering. This marks the transition of a company
from a privately owned firm to a public held firm. Every
incorporated business issues stock, although initially, to a few
stockholders. In order for a company to raise capital without
incurring debt, one way is to sell stock to the public.
You can make money from an IPO in two ways. The first is to get
in early and buy a bunch of shares hopeing for a quick increase
then sell it off for a huge profit. The other is to watch and
wait. See if a stock is fairly priced. If it's reasonable, grab
the stock.
Shorting Stocks or selling short is an advanced technique that
is very risky. Short sellers look for the best stock to sell.
Short sellers sell stock they don't actually own with a belief
the value will come tumbling down in the near future. When the
price drops, they can buy the stock at the lower price, pocket
the profit and return the shares to the owners. It is very risky
because if the price goes up instead of down you will lose money
and tis no way to easily speculate if a stock will fall. So the
potential for loss is greater than the potential for profit.
Margin Trading uses borrowed money to increase how much stock
you can buy. You can open a margin account with a broker, but
again this does have a lot of risk. If you were to buy a stock
worth $1,000 without the use of margin trading, you would have
to dish out the $1,000 dollars. But if you margin trade, your
broker can lend you half of the amount or $500 and you only need
to shoulder the other $500. If the stock gets you $10 per stock,
profit will be based on the number of stocks you bought with
$1,000. Then you can pay the broker back. If you did not margin
trade, your profit would only have been for the number of stocks
you could have initially afforded for $500. Of course, if the
stock does not profit you will owe the broker the difference
plus any fees.
It's never safe to gamble your money away on some company you
don't even know or try trading techniques that you are not
familiar with. The basics of the stock market lie on the
companies' background. Make sure you research to ensure your
money is in the right hands and remember, the greater the
profit, the greater the risk.