The stock market is as deep as the ocean and beautiful as a rainbow. Since the external world sees the lucrative returns, most people are tempted to invest in stocks. However, it’s only one side of the coin.
People don’t understand that the stock market is the ocean, and one should make practical decisions. If you’ve been into the stocks for a while, you may have come across various terms such as bear & bull market, correction, recession, crash, etc. But do you know what exactly they mean?
Are you curious to unlock the basics of the stock market? If yes, you’re in the right place. In this article, you’ll uncover various essential facts about stock investments. However, enrolling in a reliable forex trading course is ideal for knowing more about stocks and their working functionalities.
Let’s dive in.
1. How Do Stock Markets Work?
Stock markets allow investors and traders to buy and sell stocks. Usually, the stocks are listed on various exchanges such as New York Stock Exchange, NSE, BSE(India), and Nasdaq. These exchanges gather the buyers and sellers on a single platform. Hence, it acts as a market.
The stock price depends on various factors, such as supply and demand. Nowadays, brokers represent the traders ii.e., traders should place an order using multiple brokers. This broker then actively engages with the exchange on behalf of the users.
Each exchange has different opening and closing times. For instance, the trading timings for NYSE and Nasdaq are 9:30 AM to 4 PM EST.
Have you ever heard of the stock market going up and down? It usually refers to market indexes. The market index is a measure to track the stock performance in various industries such as retail, technology, healthcare, finance, etc.
Investors leverage market indexes to understand their portfolio performance. This factor even helps them to make crucial decisions on whether to hold or sell the stocks.
2. What About Bull & Bear Markets?
Bull and bear markets are the most common terms in the stock market environment. One thing is sure neither the bull market is full of bulls, nor the bear market is loaded with bears.
The bull and bear represent the hike and fall of stock prices. This means the bear market represents a decrease in stock prices by over 20%. On the other hand, bull markets represent healthy markets with enormous economic patterns. Bull markets are directly linked to economic growth, whereas a bear market means a devastating economy.
3. Let’s Look Into Other Key Stock Marketing Terms– Corrections & Crashes
Did you know the average stock market return is measured in the S & P 500 index and spikes over 10% each year? The S & P 500 index is a bunch of publicly traded stocks of 500 multi-million companies.
Now, let’s understand what the correction is in the stock market. It’s the fall of the market return by 10% or even more. Most people are often confused between a correction and a crash. Although both tell about the fall in prices, they aren’t the same.
A crash is a sudden drop of stocks like in 2020 due to the COVID-19 pandemic.
Note: The markets are volatile, and the price drop is natural. However, this doesn’t mean these markets bag you tons of losses. The crash is temporary, so the bear market. Most times, bull markets are on the rise, so the stock prices rise eventually.
Market crashes have nothing to worry about if you’re a long-term investor. Instead, they’re an opportunity to buy more stocks at massive discounts. People tend to sell stocks during a recession or crash. However, a successful investor holds the portfolio in hard times without emotions.
Because he knows that the bear market is temporary and the stocks will certainly rise. The investors who lost hundreds and thousands of dollars gained millions after the crash.
4. Significance Of A Diversified Portfolio
Do you want to know the secret sauce of the investors who enjoy minimal losses even in case of recession or stock market crash? Simple. They just maintain a diverse portfolio.
For instance, if you drop both of your legs in the water, you’ll undoubtedly immerse in it when the water level increases. But what if you put one leg in the water and one on land? Of course, there’s a risk of submerging into the water, but you can minimize the risk by jumping onto the ground.
Similarly is the case for diverse portfolios even. Rather than altogether investing in one company, investors invest in stocks such as bonds, securities, gold, penny stocks, mutual funds, fixed deposits, and more.
Investing in mutual funds is a safer choice if you’re just starting. Yet if you’d like to play big and win big, choose reliable stocks after fundamental and technical research.
5. Stock Marketing Tip Every Beginner Should Know
Who wouldn’t love to get rich faster? If you’re investing in stocks, thinking of it as a get-rich scheme, you’re on the wrong path. It’s neither gambling nor a lottery. Investing or trading in stocks requires extensive patience, consistency, and determination.
The beginners are more tempted towards temporary gains. They’re usually indulged in emotional investing. Fear of losing money and the greed to earn more money plays a crucial role throughout their investment process. However, the loss of emotional investment is higher than the market crash.
The emotions can only worsen the situation. This is why legendary investors like Warren Buffet suggest eliminating emotions while investing. So, ensure you’re free from it before entering the stock investment or trading.
Investing in stocks isn’t a piece of cake. It requires heavy background checks on the company and a critical analysis of its financial status. And more significantly, it involves risk management. So, before investing, one should dwell on the basics such as the functions of a stock market, understanding various markets, crashes, and corrections. Read the article to uncover basic facts about stock markets.