Stock Market for Beginners

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Stock Market
A stock market, equity market or share market is the aggregation of buyers and sellers (a loose network of economic transactions, not a physical facility or discrete entity) of stocks (also called shares), which represent ownership claims on businesses.

These may include securities listed on a public stock exchange, as well as stock that is only traded privately.

Examples of the latter include shares of private companies that are sold to investors through equity crowdfunding platforms.

Stock exchanges list shares of common equity as well as other security types, e.g. corporate bonds and convertible bonds.

A person who owns a percentage of the share has the ownership of the corporation proportional to his share. The shares form stock.

The stock of a corporation is partitioned into shares, the total of which are stated at the time of business formation.

Additional shares may subsequently be authorized by the existing shareholders and issued by the company.

In some jurisdictions, each share of stock has a certain declared par value, which is a nominal accounting value used to represent the equity on the balance sheet of the corporation.

In other jurisdictions, however, shares of stock may be issued without associated par value.

Shares/Stocks
Shares represent a fraction of ownership in a business. A business may declare different types (or classes) of shares, each having distinctive ownership rules, privileges, or share values.

Ownership of shares may be documented by the issuance of a stock certificate.

A stock certificate is a legal document that specifies the number of shares owned by the shareholder, and other specifics of the shares, such as the par value if any of the class of the shares.

Shareholder
A shareholder (or stockholder) is;
an individual or company (including a corporation) that legally owns one or more shares of stock in a joint-stock company.

Both private and public traded companies have shareholders.

Shareholders are granted special privileges depending on the class of stock, including the right to vote on matters such as elections to the board of directors, the right to share in distributions of the company’s income.

The right to purchase new shares issued by the company, and the right to a company’s assets during a liquidation of the company.

However, shareholder’s rights to a company’s assets are subordinate to the rights of the company’s creditors.

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Shareholders are one type of stakeholders, who may include anyone who has a direct or indirect equity interest in the business entity or someone with a non- equity interest in a non- profit organisation.

Thus it might be common to call volunteer contributors to an association stakeholders, even though they are not shareholders.

Although directors and officers of a company are bound by fiduciary duties to act in the best interest of the shareholders, the shareholders themselves normally do not have such duties towards each other.

However, in a few unusual cases, some courts have been willing to imply such a duty between shareholders.

For example;

In California, USA, majority shareholders of closely held corporations have a duty not to destroy the value of the shares held by minority shareholders.

Shareholder rights
Although ownership of 50% of shares does result in 50% ownership of a company, it does not give the shareholder the right to use a company’s building, equipment, materials, or other property.

This is because the company is considered a legal person, thus it owns all its assets itself.

This is important in areas such as insurance, which must be in the name of the company and not the main shareholder.

Buying Shares/Stocks
There are various methods of buying and financing stocks, the most common being through a stockbroker.

Brokerage firms, whether they are a full-service or discount broker, arrange the transfer of stock from a seller to a buyer.

Most trades are actually done through brokers listed with a stock exchange.

There are many different brokerage firms from which to choose, such as full-service brokers or discount brokers.

The full-service brokers usually charge more per trade, but give investment advice or more personal service; the discount brokers other little or no investment advice but charge less for trades.

Another type of broker would be a bank or credit union that may have a deal set up with either a full-service or discount broker.

There are other ways of buying stock besides through a broker.

One way is directly from the company itself.

If at least one share is owned, most companies will allow the purchase of shares directly from the company through their investor relations departments.

However, the initial share of stock in the company will have to be obtained through a regular stockbroker.

Another way to buy stock in companies is through Direct Public Offerings which are usually sold by the company itself.

A direct public offering is an initial public offering in which the stock is purchased directly from the company, usually without the aid of brokers.

Selling Shares/Stocks
Selling stock is procedurally similar to buying stock.

Generally, the investor wants to buy low and sell high, if not in that order (short selling); although a number of reasons may induce an investor to sell at a loss, e.g., to avoid further loss.

As with buying a stock, there is a transaction fee for the broker’s efforts in arranging the transfer of stock from a seller to a buyer.

This fee can be high or low depending on which type of brokerage, full service or discount, handles the transaction.

After the transaction has been made, the seller is then entitled to all of the money.

An important part of selling is keeping track of the earnings.

Importantly, on selling the stock, in jurisdictions that have them, capital gains taxes will have to be paid on the additional proceeds, if any, that are in excess of the cost basis.

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Share price determination
At any given moment, an equity’s price is strictly a result of supply and demand.

The supply, commonly referred to as the float, is the number of shares offered for sale at any one moment. The demand is the number of shares investors wish to buy at exactly that same time.

The price of the stock moves in order to achieve and maintain equilibrium.

The product of this instantaneous price and the 􏰂oat at any one time is the market capitalisation off the entity offering the equity at that point in time.

EMH says that investing is overall (weighted by the standard deviation) rational.

That the price of a stock at any given moment represents a rational evaluation of the known information that might bear on the future value of the company.

Therefore share prices of equities are priced efficiently, which is to say that they represent accurately the expected value of the stock, as best it can be known at a given moment.

In other words, prices are the result of discounting expected future cash flows.

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When prospective buyers outnumber sellers, the price rises.

Eventually, sellers attracted to the high selling price enter the market and/or buyers leave, achieving equilibrium between buyers and sellers.

When sellers outnumber buyers, the price falls. Eventually buyers enter and/or sellers leave, again achieving equilibrium.

Thus, the value of a share of a company at any given moment is determined by all investors voting with their money.

If more investors want a stock and are willing to pay more, the price will go up.

If more investors are selling a stock and there aren’t enough buyers, the price will go down.

That does not explain how people decide the maximum price at which they are willing to buy or the minimum at which they are willing to sell.

In professional investment circles the efficient market hypothesis (EMH) continues to be popular, although this theory is widely discredited in academic and professional circles.

Financial Market
A financial market is a market in which people trade financial securities and derivatives at low transaction costs.

Securities include stocks and bonds, and precious metals.

The term “market” is sometimes used for what are more strictly exchanges, organizations that facilitate the trade in 􏰁nancial securities, e.g., a stock exchange or commodity exchange.

This may be a physical location (such as the NYSE, LSE, JSE, BSE) or an electronic system (such as NASDAQ).

Much trading of stocks takes place on an exchange; still, corporate actions are outside an exchange, while any two companies or people, for whatever reason, may agree to sell stock from the one to the other without using an exchange.

Trading of currencies and bonds is largely on a bilateral basis, although some bonds trade on a stock exchange, and people are building electronic systems for these as well, to stock exchanges.

Types of financial markets
Within the Financial sector, the term “financial markets” is often used to refer just to the markets that are used to raise finance.

For long term finance, the Capital markets; for short term finance, the Money markets.

Another common use of the term is as a catchall for all the markets in the financial sector, as per examples in the breakdown below.

Capital markets which consist of:

Stock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof
Bond markets, which provide financing through the issuance of bonds, and enable the subsequent trading thereof.
Commodity markets, which facilitate the trading of commodities.
Money markets, which provide short term debt financing and investment.
Derivatives markets, which provide instruments for the management of financial risk.
Futures markets, which provide standardized forward contracts for trading products at some future date; see also forward market
Foreign exchange markets, which facilitate the trading of foreign exchange
Cryptocurrency market which facilitates the trading of digital assets and financial technologies.
Spot market
Interbank lending market
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Stocks Or Mutual Funds
If you happen to have some money left over at the end of all the bill payments and you have no need for any more toys, or even if you are beginning a prudent and fiscally responsible gamble on some wealth that incorporates investment opportunities, you may end yourself wondering whether investing in stocks or purchasing mutual funds will offer the best returns.

You might also consider this question when considering how to set up a retirement fund.

In order to help make the decision, it is important to understand what stocks and mutual funds are.

Stocks: Most people believe they have a basic understanding of what stocks are, simply because of their exposure to the term in everyday usages.

Stocks are individual bits of companies that are available to be purchased by the public in open trading on the stock exchange.

Stocks are often sold in bundles, and thus to purchase a stock in a specific company often entails some kind of minimum purchase.

Stockholders have a vested interest in the company’s well-being, as the price of their stocks are directly related to a company’s performance.

Stocks are divided according to the kind of business they represent, which is known as a sector.

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Stocks Or Mutual Funds
Mutual Funds: Mutual funds are collective investments that pools the money from a lot of investors and puts the money in stocks, bonds, and other investments.

Mutual funds are usually managed by a certified professional, as opposed to the individual management of stocks. In essence, mutual funds incorporate many different types of stocks.

The question of whether or not to invest in stocks or mutual funds will primarily come down to the personal expertise and wealth of the individual.

Many people will be tempted by the “game” aspect of buying stock, as well as the chance to invest singularly in a company that is well-known or can be easily researched.

The fact is, however, that by the time stocks become available on the market they are generally already highly-priced, and investing in individual stocks is a highly risky maneuver as your entire process hangs on the well-being of just one company.

Even wealthy investors diversify their portfolios by investing in several different types of stock, and this can simply be unaffordable for the average person.

The better bet for the beginning investor is to purchase mutual funds.

Mutual funds will pool the costs of many different stocks, lessening the risk of losing your money and raising the chances of gain.

Mutual funds may not provide quite the excitement of investing in a lucky stock, but they are good investments for a long-term financial opportunity.

In addition, mutual funds are managed by professionals that are well acquainted with the pitfalls and opportunities of the investment sector.

Which will cut down on both risk and the time it would take to pick individual stocks through research and appointments.

Mutual funds will also distribute the risks among several investors, and it is all managed by someone who likely has contacts within the financial world.

Investing in Shares for Beginners
Investing can be confusing, especially for the beginner.

Getting some basic tips can help a beginning investor to make informed choices that at their needs.

Each person has a different goal when investing and that plays a big impact on how you invest.

The following list explains some things beginners should know before investing.

  1. Understand that there are no set rules for investing. There are no guarantees and no perfect way to invest.

  2. Make informed choices. Before investing in any way you should completely understand how your investment will work and all of the details of the transaction.

  3. Make a simple plan to determine your goals and needs. This will help you to determine what investments to make and how much money to invest.

These three tips are great for general investing, but many people are looking to invest in the fast-paced world of the stock market.

The above tips are a good beginning, but the following tips will further help those interested in investing in stocks.

  1. Look at the value of the stock instead of the price. Low-cost stocks may be low for a reason. Look at the whole picture. See why the price is low and if there is a possibility it may rise.

  2. Check the company’s return on net worth. This is the pro􏰁t after taxes divided by the net worth. It is important to see a trend of growing return on net worth.

  3. Spread out your risk. You should not put all your money in high-risk stocks. Try some lower risks and some higher risks. This is the best way to protect your money.

  4. Understand the basics of stock prices. Prices move up or down depending on future projections.

These four tips can help a beginning investor start investing in the stock market.

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How To Protect Yourself In An Economic Crisis
Does the current economic crisis have you worried? Are you wondering how to achieve financial freedom so you can protect yourself and your family from the coming financial crash?

Here is what you need to know.

The first thing you need to understand is what the word economics means in terms of thinking about your family, and how you can use what it means to your financial advantage.

Forget what the media says about economics when they talk about the roller coaster ride of the stock market, supply and demand, inflation, banking industry mortgage defaults and the unemployment rate.

Those are ‘economic characteristics’ that measure an area much larger than you can control.

What you can control is your own household economics.

The definition of economics I am using is the original one; meaning “the art or science of managing a household or business.” And that is something that you, as an individual, can control.

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Tips to protect yourself in a recession
1 – Spend Less Than You Make

Take a lesson from your parents or grandparents who made very little, but lived very well. Keep expenses down to a level below what you bring home in your pay check after taxes.

The fastest road to financial disaster is spending more than you make. It’s possible to maintain your quality of life while cutting optional spending.

This can be done by doing something as simple as renting a movie and making popcorn at home instead of going to the theatre, to buying a new used car instead of a brand new car.

2 – Pay CASH

Every time you purchase something using credit cards that you cannot pay off as soon as the statement arrives, you are committing your future earnings to the credit company.

Those future earnings will be needed to pay your regular household expenses, so you end up in economic slavery known as the credit trap.

The exception is purchasing property that increases in value, such as buying a home or investing in a commercial building that puts more income in your pocket.

Tip: When paying with cash; negotiate a cash discount. When the economy is sliding down and credit is harder to get, the guy with the cash is king.

In addition, end out how to buy wholesale instead of retail to further lower your cost.

3 – Make the Money BEFORE Spending It

If there is some large purchase you need to make or want to make in the future, start putting small amounts in a savings account towards that purchase and keep that up until you have the cash to pay for it.

If you have 10 years before your child enters college, then end out what the tuition will be and figure out how much you have to put away every week to have the cash the year they graduate from high school.

Plus apply for every student scholarship, grant or financial aid package you can locate.

4 – Stash Some Cash for Emergencies and Living Expenses

Nothing will make you sleep better at night than the financial freedom of having some cash tucked away for emergencies like having to get the car repaired, needing some unexpected dental work or losing a job.

When you have a cash cushion you can get your hands on immediately, then magically, you stop worrying about money, your attention goes back on living life and enjoying it, and making money suddenly gets easier.

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I hope this post help you to understand what the Stock Market is, and what that can bring to your life and the risk of the share market.

Please have a look to my Library I have some good books that can help you a lot if you are a beginner.

Best Regards

Cheers

Smart Money

https://mysmartmoneytips.com/stock-market-for-beginners/



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