Tuesday, August 15, 2006

Stock Market for Beginner

"You, the newcomer, and the stock market"

So you wanna to try your fortune in the stock market. And too bad, you don’t know how and where to start. So what do you do now?

Well, the very first important thing to do is ask the basic question of what is a stock and its significance.

A stock represents ownership of a company. Some sees stock as certificates. So the more stocks a person owns of a particular company, the more of the company he/she own. And the more the company they own, the bigger the influence he/she have in running the company. This is known as equity investment.

The next thing important thing to do is familiarize yourself with financial terms such as ‘price-earnings ratio’, ‘margin’, ‘option’, ‘earnings per share’ and ‘leverage’.

Up next, it’s to knowing where and how to actually buy stocks.

There are 2 ways to buy stocks:

1. brokerage service
2. online exchanges (e.g. banks)

Exchanges are services that enable investors to access stocks all over the world. Here, he/she can buy and sell stocks without the need for a broker. Some banks allow you to set up your own stock portfolio and trade stocks online using the cash you already deposit in these banks.

Brokerage services are rendered by brokers. These middlemen do all the work for you. They research the stock market, give advice, and buy and sell stocks according to the wishes of their clients. These brokers earn a commission from the stocks bought or sold.

Once you have chosen how to buy and sell stocks, the next thing to do is to open an account. As mentioned earlier, exchanges allow you to monitor and control your stock portfolio personally. If you choose to enter the stock trade with a bank, then ask your bank the details of setting up your own account.

If you choose to trade stocks via a broker, find a reputable broker and ask them to open and manage an account for you.

After you have successfully set up an account, it’s time to study the stock market and plan your strategy: will you be conservative in investing your money? Or will you be aggressive? Are you in it for the long term? Or are you a day trader?

After you have detailed your plan, it’s time to do some research on the stocks offered in the market. Having a broker will significantly make it easier for you as they will do the research and give you advice. But, it is still best to study the market and the mechanism yourself so you can understand the risk and reward you get.

Be cautious though, the stock market is volatile. Be sure to understand that most of the time it takes a strong heart and strong will to invest in stock since most people are stressed out when the market is declining (but also give you faster return if you know the trick).

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