Stock Market Investing

Financial Dictionary -> Investing -> Stock Market Investing

Stock market investing is an investment mechanism which relies on the purchase and sale of stocks to gain profit. The stock market is a popular investment environment, outperforming the real estate market and various financial instruments that make profit. However, for an investor to be successful in stock market investing, he must be able to survive stock market crashes and various shocks that come with recessions.

Individuals who can deal with the risks involved in the stock market trade should be aware that the value of stock does not rest in their own hands. Some people think that stocks increase in value due to the company's performance on the market. However, the actual value is determined by how much people are willing to invest in shares, offered by the business entity over a certain period of time.

How the Stock Market Works

Companies require money in order to secure funds for expansion or the purchase of assets, e.g. real estate properties. To find money for these, a business entity may either obtain a loan from a bank or sell stocks on the stock market. In fact, individual stocks or shares represent part ownership in a company. Buying shares of a company and becoming a part owner, one has a voice in how the company is run and how operations are handled. In exchange, the owner of the shares takes a portion of the profit.

How to Invest in the Stock Market

To succeed on the stock market, one should have knowledge of how the stock market works. It is a good idea to read about the stock market, take training sessions, attend seminars, and review financial websites. Another necessary step is to plan how to invest on the market. Establish financial goals and determine the type of stocks you want to purchase. Make sure you build a sound stock-picking strategy. The trick is to come up with a diversified portfolio. Certain stocks may not increase in value during a bear market. To avoid the pitfalls of sticking to one particular stock, it is best to invest in diverse markets, balancing any rise or fall in stock market value. If you are particularly risk-conscious, you can put your money in safe investment instruments, but returns will be low. If you aim at making a decent profit, it is best to shoot at the gold middle ground.

When you have a good amount of knowledge and skills, make sure you also choose a good brokerage firm to act on your behalf. Think of whether you want your broker to choose hot markets or you prefer him to follow your instructions. Transactions on the stock exchange require the services of a broker; so, make sure you compare brokerage firms before you go with a particular one. Afterwards, buy stocks you are comfortable with and ask your broker for advice. Avoid selling particular stocks if their value drops. Give them a chance to go up first. In addition, you might think of stop loss order whereby you instruct your broker to sell when the price of certain stocks falls below a certain level. This option is particularly useful if you plan to be away on a vacation or a longer business trip, and you won't be able to follow fluctuations in the stock value.