A Beginners Guide To How The Stock Market Works

So after much deliberation you’ve decided to give investing in stocks a try. Let me be the first to say congratulations, as because Jeremy Siegel said in his book “The Future for Investors”, stocks generally outperform everything from bonds to gold. Stocks and shares have been made easily accessible through the digital age, but for many beginners there are still question marks surrounding how the stock market works. In this guide you will get a basic grasp on how the stock market works, along with how you can prepare yourself to make that first trade.

Supply and demand

When you logon to a stock market trading platform you are going to be presented with 1000s of listings. Each listing will represent the stock of a company and present a unique set of credentials. The key to the success of a stock is found within these details, while the price of the stock is in large part determined by supply and demand. Should a stock be highly sought after you can expect its price to grow, while should a stock be one that people want rid off then its price will dip. Working out how the stock market works isn’t too hard, but figuring out how to make it work for you is a different thing entirely.

Risk is par for the course

While figuring it how the stock market works, you need to address your own attitude to trading, more specifically your attitude towards risk. You may be eager to get started, but take a moment to evaluate the trading personality you have. Do you like a gamble? Does risk worry you? Do you favour the long shot over the sure thing? All these questions will help you determine how you should approach investing. The stock market works in mysterious ways at times and you are going to be presented with both safe and risky investment options, so you need to figure what your natural approach to all types of stock variations will be.

Amateur or professional

Along with analysing risk, the stock market trading types available also need to be looked at. What is meant by this is the fact that a trader can be considered everything from amateur to professional, with semi-pro slotting somewhere in between. Whichever type you qualify as, you are going to need to dedicate a set amount of time to trading each day. As an amateur you should look almost exclusively towards long growth stocks, largely for the reason that you won’t have to watch them so closely. Those who have more time to dedicate can look at day trading and try and make short gains off more volatile stock options. Either route you take is applicable given how the stock market works.

Give it a go

These days you don’t need to head down to a trading floor to see how the stock market works. The Internet has made the stock market accessible to almost everyone, so through careful thought you are only ever a few clicks away from making a successful trade.

Spreadbetting, CFD trading and Forex are leveraged. This means they can result in losses exceeding your original deposit. Ensure you understand the risks, seek independent financial advice if necessary. The value of shares and the income from them may go down as well as up. Nothing on this website constitutes a solicitation or recommendation to enter into any security or investment.

Alexander Bowring is a London based writer and a Southampton Solent University Screenwriting graduate. He has worked alongside TV personality and Telegraph feature writer Alison Cork, whilst also having produced content for ITV, This Morning, Canvas8, Who’s Jack, Alison at Home, and Bonallack & Bishop Solicitors. Alexander also has a keen interest in investments.

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