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An Introduction to Stock Market Investing

Updated on July 13, 2013
"Stock Quotes"
"Stock Quotes"

An understanding of the basics is very important for future development. A strong foundation is the key component of a enduring construction.

World's leading investor, Warren Buffet, has said that he still sticks to the basics of investing when he is making an investing decision. The basics of investing is the technical analysis of companies' performance.

Learn from the best in the business: Warren Buffet

Stock Market Terms

  • A Stock/Share

A stock is the smallest unit of ownership of a company. Owning even a single stock/share of a company makes you an owner of the specific company. Each stock has an value. And thousands of these shares make up the total value of the company.

  • Stock Market

A market where the said stocks are traded among buyers (investors and traders). Also known as the Stock Exchange. There are two stock markets, namely "Primary Markets" and "Secondary Markets".

  • Primary Market

A market where stocks that are issued by a company for the first time, usually during establishment of the company or 'listing' in the stock exchange. The stocks will be issued at par value.

  • Secondary Market

A market where already issued stocks are traded between investors and traders in the stock market. All stock trading that occur after the initial listing are taken under the Secondary Market.

  • Par Value (of a stock)

This is the value of a share that has been predetermined by the company that is used as nominal measure of value of a stock. Also known as face value and nominal value.

  • Market Value (of a stock)

This is the value of a stock at which it is currently being traded in the stock exchange. Market value can either be higher or lower than the par value of the share depending on a large number of factors, mainly affected by the profitability/performance of the company.

  • Investment Portfolio

An investment portfolio is a collection of investments. When you invest your money in the stock market, the best option would be to divide your money into a few (4-6) companies' stocks so you could minimize the overall risk of your investment. It's highly unlikely that all 4-6 companies share price will drop, so you can mitigate your losses from 1-2 companies with the gains from other companies.

If you really want to be successful at either investing or trading, you need to know how to analyze the performance of each company and predict the future growth.

Investing or Trading?

There are two ways you can engage with the stock market. Invest or Trade. Yeah, they are quite different concepts altogether. Let's see how.

Investing

Investing is rather a long term commitment. You invest in a company (stocks) with an intention of holding the investment for sometime, some longer period than just weeks or months. There is no hard and fast rule as to the exact time period. But usually investing can be usually a commitment for a year or more. But this could extend to many years, even 20-30 years too.

Investors like Warren Buffet are capable people of predicting the future performance of a company by analyzing it's performance data now. And they usually target a long term investment spreading over 5-10 years. Again, there are no standards in this regard.

Trading

Trading, however, is rather short term in nature. Here the intention of the buyer will be to buy the stock now and sell it again as soon as possible with a predetermined profit margin. Trading can expand up to a week, a month, but rarely up to a year. On the other hand it can be as short as a few minutes transaction, depending on your talent and luck.


Which is better? That is not really a question I can answer. It should be determined by you and your intentions. If you want to make a quick buck, trading would be the option, but it has it's own share of risks. If you are a novice into the stock market, the best choice would be to get hold of a stockbroker to manage your investment for you. They will decide on the best investments for your share of money and invest them in an investment portfolio.

Online Stock Trading software can give a you a wealth of information, from price quotes, increases and decreases in prices, price highs and lows, price trends, graphs, charts and analysis tools all in real-time.

Conventional Stock Trading vs Online Stock Trading

Conventionally stock trading could happen via your stock broker. Not 'could', but that is the only way. You do not have a direct access to your investments. You must be connected with a stock brokering firm which will assign you a stock broker who will advise you and control your money for you. Since you do not have a direct access to your investment, the stock market or the invested companies, a stock broker is a must. For the services provided, a stock broker charges a small percentage (usually less than 5%) out of the transaction value (only if you do a transaction).

On the other hand, Online Stock Trading is very user friendly and dynamic and growing in popularity with the popular use of the Internet. Also most stock brokers are offering the facility to engage in Online Trading at the comfort of our homes. There are special software designed to connect the users to the stock exchange of their respective countries in real-time. And through these software the users are able to directly access their investments and make any adjustment they wish. Here, the involvement of the stock broker is minimal. His duties will limit to advising you and managing deposits and withdrawals of money to/from your investment portfolio and carry out any instructions given by us. Still the stock broker is capable of managing our portfolio for us, in any case we decide to give up online trading.

Usually the stock brokering firms provide the online stock trading software free of charge when you become an investor with them.

Interface of the EclipseTrader software
Interface of the EclipseTrader software | Source

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