Invest in Stock market – Know before invest

The stock market on the one hand is an area for unlimited earnings, raising funds, literate investments and capital multiplying. On the other hand, it is possible to lose everything for one impulsive and wrong decision. In order to study all aspects of the stock market, it will take a very long time. We’ll figure it out if it’s worth it.

Content

• What is the stock market?
• Participants of the stock market
• Stock market functions
• How is trading in the stock market
• How to start trading in the stock market
• How to make money in the stock market
• Tips for novice investors
• The main mistakes novice investors

What is the stock market?

The stock market is a set of mechanisms that allow individuals or legal entities to perform transactions with securities.

Someone thinks that the stock market is only responsible for securities, but this is far from the case. It is enough to look at what is traded on stock exchanges and everything will become clear. There is a currency, raw materials, securities and derivative financial instruments that facilitate financial trading.

At the same time with the English name, everything is also not so unambiguous. The phrase stock market  previously also treated as a securities market. But now, with the development of modern technologies, we come to the understanding that it is impossible to separate the three components of one market into separate spheres, therefore, in the concept of the stock market, most of the “goods” for investment are determined.

Now we will understand what is traded in the stock market. If it concerns securities, the main commodities will be stocks and bonds. Bills and certificates are also being circulated on the market, but much less frequently. Let’s look at what a stock and bond are, consider their main differences and the benefits of a particular security.

A share is an equity security that gives the holder the right to a part of the organization’s property upon liquidation, as well as receiving dividends.

Shares are unprivileged and privileged. Their main difference is that the income for the first fluctuates depending on the financial result, and the income for the second is stable, but their owner does not have the right to vote on the board of directors. More common are unprivileged stocks.

A bond is a debt security that guarantees the holder the right to receive the nominal price of this paper from the issuer.

A more conservative financial instrument that allows you to make a profit with a greater chance.

Derivatives are futures and options.

Participants of the stock market

Participants in the stock market can be divided into several categories:

• Issuers are persons who issue securities;
• Investors are people who buy securities.

In addition to these two categories, there are those who are responsible for the work of the exchange: depositories, registrar, clearing house, etc. These bodies are responsible for the functioning of the entire system. Thanks to them, a connection is made between all participants, sales occur every second. For their work they take a small commission.

There are also two special categories of participants:

Broker – a person who carries out operations for the purchase / sale of securities on behalf of and at the expense of the client.

It can be both credit organizations, and special companies that carry out brokerage activities. Now, their competence includes trust management (use of the client’s funds to receive his profit), consultations, training, etc.

Dealer – a person carrying out operations of buying and selling securities on his behalf and at his own expense by publicly announcing the purchase / sale price.

These are professional market participants who require a license to carry out their operations. Regulation of the conditions for obtaining such licenses is the bank. At the initial stage, with minimal turnover on the trading account, you can use only basic tools, which does not allow you to accelerate to good cash in a short time.

Stock market functions

Now let’s talk about the global function of the stock market. It will allow us to understand the essence of this phenomenon, which will bring one more step to making a profit.

So, the main function of the stock market is the redistribution of funds. Everything is the same as in the term “investing”. People who have an excess of cash give their money to those who have a lack of money.

Often happens as follows: the company needs free funds for development -> issues shares -> attracts funds -> develops -> pays dividends (profit).

In America and the West, the economic importance of the stock market is difficult to overestimate. For example, in America, an unorganized securities market is so developed that the shares of companies that were only created could be bought literally in a garage.

This was used both by stock brokers (who sold useless securities to unaware investors) and traders who hoped to benefit from these securities if they suddenly went up. Now everything is different.

In the West, the task of redistribution is very actively engaged in banks. They attract money resources from the population, increasing their monetary opportunities to the maximum, and redirect them to the stock market.

Buying shares or bonds of companies or even states, they give those funds in which borrowers need. And after that they make profit both from loans and from operations with securities, and again redirect funds to purchase securities.

A vicious circle, thanks to which it is possible to successfully stimulate the development of the economy, businesses of all sizes and, most importantly, to reduce the gap between classes.

From this function follows another – the management of the state budget. You can increase the state. budget at the expense of the population – by issuing federal loan bonds. Thus, free money resources of the population are attracted and with their help the main holes in the budget are repaid.

How is trading in the stock market

In order to directly buy shares on the exchange, you will need:

• Obtain a license;
• To make an entrance fee. On the MICEX – 3 million rubles;
• Buy a special software, which costs from 100 thousand rubles.

That is why the entire mechanism of trade for beginners and traders who do not have huge capital, rests in brokers. As mentioned earlier, these are legal entities that carry out transactions on behalf of clients. For their services they receive a commission, earning that way.

If you do not plan to trade on the exchange yourself, or you do not have large free cash, it is recommended to use the services of a broker. But if there is an opportunity to obtain a license of an exchange player independently, it is highly recommended that this be done, because the broker charges a commission, which significantly reduces the profit for each transaction.

How to start trading in the stock market

That is why in order to start trading in the stock market, you need to perform the following operations:

Step 1. Select a broker . This is one of the most important stages, thanks to which you can either start to make a profit (first time to play at a loss or to zero) or at one time go bankrupt. In order to find a good broker, the first thing to look at is the stability of payments. No matter how much you earn, it’s important how much you can take.

One of the famous poker players said:

Then it was not a problem to win money in poker. The main problem was to get away with the winnings.

Of course, now there are fewer dishonest brokers, but nevertheless they are. After that, the cost of services, commissions, software and other application parameters.

Step 2. Installing the software on the user’s computer and its basic configuration . One of the easiest stages, because most brokers have their own support service, which can help with all technical issues.

It is much more difficult to learn about all the functions of the terminal. Often they are quite difficult to learn, and in order to understand what each button responds to, it may take several days. After that, you can say that the terminal is mastered, now you can safely start trading.

Step 3. Open a demo account . At this stage, we do not study and do not even test the strategy. Just checking the functionality of the trader terminal. The game on the demo account and on the real sometimes very different, primarily because of the psychology and pressure of real money.

For beginners,  such bills are dangerous in that they can give a false opinion that they know something and can immediately go on a plus. Simply test the capabilities of the terminal, a little bargain, understand when to apply your strategy and now open a real account.

Step 4. Opening a real account and making the first deposit . From this moment a long way of becoming from a novice trader to a wolf in the stock market begins. This path often takes not one or two years, but it begins with this step.

Step 5. The beginning of the game on the exchange on the already developed strategy . From this moment the trader receives profits, losses, closes the profitable positions, or loses all his money in the account. Everything depends only on the merchant.

Step 6. Information gathering, preliminary analysis, knowledge acquisition and strategy preparation . This will be a zero stage, which everyone must go through before they move on to the first step – choosing a broker.

How to make money in the stock market

There are two main ways of earning on the stock exchange – investment activity and speculative. Their main difference is that investment is a medium-term and long-term investment of money resources in order to obtain profit from sales, dividends, redemption of securities. Speculative activities involve the purchase and sale of securities for the purpose of resale and earnings on fluctuations in prices.

A more profitable way is speculative. More reliable – investment.

Now about how you can earn by investing:

• To buy shares . The most risky type of securities. It allows you to receive annual dividends, which depend on the financial result of the enterprise. It is recommended to buy shares of sufficiently reliable issuers – Google, Apple, Samsung, etc.
• Buy bonds . A more reliable way of investing money. The interest on some bonds is comparable to bank deposits, but nevertheless they are a fairly profitable instrument, if one is able to combine profitability and risks. After all, everyone knows that the higher the yield of a security, the higher the risk of non-payment – the bankruptcy of the issuing company. At the same time, developing companies, on the contrary, put the price below the market average, in order to compensate for the risks of investors and draw attention to them.
• Buy certificates . One of the most ambiguous ways. A certificate is one of the financial instruments, a kind of analogue of a bank deposit. With several differences – the amount of the certificate can be put absolutely any, the certificate can be transferred, sold without loss of interest, etc.

Speculators have a narrower range of ways to earn money:

• Resale of shares . One of the most important ways of earning. It can bring profitability up to 20-30% per day, but losses can be huge. A very risky way, requiring good knowledge from the trader;
• Use of futures and options . They allow you to transfer the purchase for the future period at current prices.

Depending on the mode of earnings, the profit, risks and financial instruments that yield profitability vary. Each trader should choose in which volumes he intends to trade, with what and on what profit he expects, and already from this it is necessary to choose a financial instrument.

Tips for novice investors

And now five real tips that can help investors get a guaranteed profit:

1. Continually study the stock market . The securities market is almost the same as IT-technologies. He is constantly evolving, constantly on the move. It is volatile, fluid and thanks to this there is no definite way to win and be enriched. Carefully study trends, changes, look at news, new strategies, look for ways to improve your skills. All this will come in handy and all this will make the game a plus available.
2. Remember that you play not only against other traders, but also the broker . Many forget this fact and often go to a negative distance in the long run, despite the fact that they seem to have played a plus. Those few percent, which are held by the broker and the entire stock exchange, very much hit the ordinary trader’s pocket.
3. Have a clear strategy . Everyone must choose and adapt the trading strategy to himself. The combination of the manner of playing on the stock exchange with character traits, risk appetite, profit requirements and a variety of psychological factors allows achieving high results simply by following one “style of play”. But the strategy should be flexible enough to adapt to the changes in the market.
4. Emotional control . This does not mean a complete rejection of impulsive transactions “by intuition.” This means analyzing all trades and finding the best method. Even if the trader will make the most profitable trades, which he discovered because of his intuition – so it is necessary to continue. But if emotional decisions brought only losses, then it is recommended to reconsider the approach to the opening of transactions. Analysis and analysis only.
5. Conducting a diary of transactions . Probably one of the most important tips. Diary deals – the place where all information is recorded: when the transaction was opened, the essence of the operation, what strategy, what was expected, what happened, the profit or loss, why the deal was opened. And after each day, an analysis is conducted, which allows you to identify what turned out to be profitable, and what is unprofitable. Over time, this diary grows into a full-fledged analytical book of the trader, through which he can track his progress, and also gets the opportunity to analyze which approach brings him more income.

These simple tips can really help to trade on the stock exchange even more successfully than before.

The main mistakes novice investors

Now about the five main mistakes of beginning investors:

• Too early fixing profits . Beginners try to fix profits as soon as it appears. This is a very erroneous approach. Ideally, the profit should be recorded either at the time of the peak of prices or at the time of the recession, but this situation is very rarely achieved. It is better to wait and at the first sign of the opposite trend immediately sell or buy;
• Emotional game . As mentioned earlier – the lack of emotional control can lead to undesirable transactions. It is better to control your emotions once again. After all, in the face of an experienced trader you will not understand whether he lost $ 2,000 now or won;
• Lack of a diary . As stated above: the diary is one of the most important elements for introspection;
• Constant change of strategies . The search for an optimal strategy is one of the features of the stock market as a whole, but a constant change of strategies can not lead to anything good. After all, you can not quickly understand all the pitfalls of this or that strategy without playing with it in practice. That’s why you need to spend some time studying the strategy, learn to play it and only then change if it is not suitable for the stock market.
• Absence of a mechanism for recording losses . This is one of the most important mistakes that when trading with a broker’s shoulder can lead to a complete zeroing of the bank account. Stop loss is an option in which losses are fixed. It is usually placed below the current price, if you buy, and higher if you sell. Such a tool is in every trading terminal, and it allows to minimize risks. Proper use of it protects against unnecessary losses.

The essence of the stock market is capacious can be reflected in one phrase – I win only when others lose. And this is the most effective definition of the game on the stock exchange.

Indeed, when some player makes the wrong decision, the other wins. This is exactly what the stock market is good for. It allows you to play against the same traders, ordinary people.

The stock market is an important tool for both the state and ordinary people. It allows more efficient redistribution of monetary resources both between sectors of the economy and between individual legal entities and individuals.

The stock market is a place where one can not stop in its development. You can only go ahead in pursuit of new skills, trends, changes and profits. Without this, outstanding results can not be achieved.

There are several books that are obligatory for reading to anyone who wants to get acquainted with the technology of the exchange game and exchange investments:

• Alexander Elder – The fundamentals of stock trading . Theoretically outdated in terms of trading strategies, a guide that allows you to understand the psychology of the game on the stock exchange, to realize what affects prices. To put it bluntly – the directory of stock exchange applied psychology;
• Benjamin Graham – Reasonable investor . A book that is needed above all for those who want to make quality passive income with the help of securities. Search for the latest edition, since it contains really practical advice, based on current stock market situations. Suitable for beginners and professionals alike.

These two books are the foundation for understanding the exchange game and investing. With their help, you can create a certain base, from which you can build on the study of additional materials.