Last Updated on:

April 22, 2021

Stock Market Basics

Investing in the stock market can be a daunting process for the first-time investor, but it doesn’t have to be.

Whether you’re looking to get started investing for the long-term or want to invest in a specific stock, there are plenty of strategies that can help you succeed.

The stock market is the greatest financial tool for building wealth, offering increased returns and diversification. 

But how can you get started? What are the best ways to invest? Here are some tips to help you get started with investing in the stock market.

What is stock market?

A stock is a financial instrument that can be bought and sold. A stock represents you as an investor in a company or business. 

This ownership claim gives you the rights to earn assets and income from your investment until you sell it.

If you buy a share, then the shares that you have purchased are a portion of the company equaling the number of shares that you own among all shares outstanding. 

One of the ways for businesses to raise capital is the stock market and debt markets. When new businesses are first listed on the stock exchange, it is called an initial public offering(IPO). Some firms have even been able to raise huge amounts of money through it.

Can you buy and sell stocks at any time?

Liquidity is the most desirable aspect of investing in stocks. You’re able to quickly buy and sell easily shares offered on the stock exchanges.

The deal can be completed as long as there is a buyer who can fit your price within a minute to hours.

All you need is a high-speed internet connection — and you can get in on the action whenever you want!

It’s quick and easy — once your bid price matches the current seller’s price, the deal is completed.

Investing

7 Steps To Start Investing In Stock Market

1. Decide how you want to invest in stocks

Decide how you'd like to invest in stocks. Investing is all about building a portfolio of investments.

You must understand the advantages and disadvantages of each investment vehicle and make every decision based on risks and returns.

Passive investing, as an example, is being challenged by active investing, which eliminates commissions, transaction fees, and charge-back costs.

But the learning curve for investing in the stock market can be hard for some right out of the gate, especially with newer investors who need help getting started — that's where Social Trading come in. They take all of the work out of investing and aim to make your decisions for you.

Check out the investing platform list

Bottom-up analysis starts with the consumer. It's as simple as going into a mall and observing what people are talking about.

During the time the iPhone was first launched out, Starbucks coffee shops and parks were flooded with customers staring at their iPhones.

You know that at the moment this product is hot, you can get a piece of the company's sales by buying Apple shares from your stock broker.

If you want a better understanding of a listed stock exchange business, you can get the company's annual report from the resources of the stock exchange.

2. Open a brokerage account

It's really easy to open an account, you can visit a branch or call your bank. 

Usually will only take a few hours to 3 business days before your application is accepted; but this depends on how much information and the supporting documents for your identity documents.

Types of brokerage account

Leverage Account

With leverage from the broker, a regular trading account helps you to buy shares of stock at twice your initial deposit sum.

IRA accounts

You can open a tax-deferred account, a retirement account, that allows you to postpone income taxes until you withdraw the retirement money.

You reduce your tax contribution by opening an IRA account. Before retirement, you should not withdraw from an IRA account. To escape a withdrawal charge, you would need to be 59 1⁄2 or comply with other relevant exceptions.

Stock Exchange Isometric Composition

3. Find the companies listed on the stock exchange

The stock market is open for trading from 9:30 am to 5:00 pm ET from Monday to Friday, with the exception of holidays announced in advance by the exchange.

The following holidays are legitimate reasons for closing for a single day: New Year's Day, President's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas Day.

Major Stock Exchanges in the United States

  • New York Stock Exchange (NYSE) - About 3,000 listed companies trade on the NYSE, known as The S&P 500. The biggest corporations in America, such as Walmart, Coca-Cola, and McDonald's, are listed on the NYSE.
  • NASDAQ - NASDAQ is the most lucrative stock exchange in America. Over 2,700 companies are listed. Firms ranging from small-cap to large-cap stocks can be found. Tech giants such as Apple, Microsoft, Intel, and Dell are usually classified on the NASDAQ. 
  • AMEX - It is a perfect place for some of the next emerging companies to be found. The AMEX comprises mostly tiny and micro-cap firms.

4. Set a budget for your stock investment

For about $200-2000, you can start investing in the stock market. Even though it may seem daunting to put down a big sum of money up front, it can be worth it in the long run. 

Entrepreneur working with bills

Some of the things to consider before investing are: 

  • The potential for gain The potential for loss 
  • What is the strategy?
  • How much will you be investing?

Based on your budget, you can try to start small or start with a lump sum of $5,000. Start small with an extra $5,000 and invest it into a diversified portfolio.

Learn as you go, join groups, listen to podcasts, and read books. Then expand your portfolio by adding more money to it as you see fit.

5. Pick Blue-chip and Dividend stocks in your Portfolio

The Dow Jones Industrial Average (DJIA) is considered a benchmark for investing and stock trading. This group of 30 stocks, originally started in 1896, is globally recognized as a benchmark for the American economy.

asia-businessmen-businesswomen-meeting-brainstorming-ideas-conducting-business-presentation-project-colleagues-working-together-plan-success-strategy-enjoy-teamwork-small-modern-night-office

The stocks that make up the DJIA are the most well-established companies on the global market.

Buying blue-chip stocks is a good idea because they are, by definition, blue-chip. That is to say, they have delivered good returns for their shareholders over a long period of time.

6. Review your stock portfolio

By diversifying the types of stocks you own, you can maximize your portfolio's potential.

By diversifying your portfolio of stocks, you can keep from overloading yourself in one type of stock, which may prove to be too risky. Diversification is particularly important when you have multiple individual goals, futures and retirement plans. 

As a well-diversified, multi-purpose investor, taking calculated risks in the stock market is essential. With between 5 and 10 stocks to invest in, you can sell the least desirable stock each year to reduce risk.

How much money do you need to open a stock account?

You can open a $3 brokerage account, but you need to make initial deposits - usually around $500 or $1,000, depending on the company - in order to buy or share specific stocks.

How much do you need to make money in stocks?

Share

Share per unit

Number of share

Ford Motor

$6.80

15

Total =

$6.80 X 15

= $ 102

The total $ require to buy 15 shares of ford Motor is $102

Rule of thumb:

  • Diversify your portfolio. 
  • You need to protect your profits from trading fees.
  • Never invest so much money that it would risk your financial future.
  • Never invest so much money that you can’t sleep well at night.

Basics of investing in the Stock Market

Sell when the stock is hot. So... if we're now on the way up, when should we be selling? The best time to sell a stock is when the price gets covered by mainstream opinion. 

The more demand there is for your share, the easier it will be to get a better price. When there's good news coverage there, you can get a better price on your stock.

Cutting Losses on the loser: If the stock drops 7% or 8% of the original purchase price, do not hang on to the stock until you lose everything.

This will save you from experiencing heavy losses from which it would be hard to come back.

What is investing in the stock market?

A company's finances are important. Every publicly traded company must file a regular financial report with the Securities and Exchange Commission (SEC).

There are three main stock exchanges: NYSE, NASDAQ, and the Chicago Board Options Exchange.

Publicly traded firms must comply with a regular financial report before they can raise capital through an IPO.

How do I invest in the stock market?

If you are a major fan of stable and long-term growth, consider following a value investing guidelines.

Your key goal is to understand and research the particular sector you are involved in, using bottom-up analysis. You can get a free copy of an updated financial report on https://www.sec.gov/edgar.

Value investing

  1. Using Price / Earning ratio to estimate company earning power, P/E ratio below=16.
  2. The Company’s general long-term prospects, study at least 5 years annual report.
  3. The quality and conduct of management, avoid CEOs that only talk about how good the share price is up in the market.
  4. Financial Strength & Capital structure, Long-term debts are less than 50% of the company's total capital.
  5. Financial Strength & Capital structure, Long-term debts are less than 50% of the company's total capital.

How do you pick a stock?

Understanding Sector Breakdown

GICS Sectors

The Global Industry Classification Standard, also known as GICS, is the predominant standard for the description of sector classifications in the financial industry. 

By picking up one stock from each segment, you can screen across the stock market to achieve diversification of your stock investment portfolio.

The 11 broad GICS sectors commonly used for sector breakdown reporting include the following:

  • Energy
  • Materials
  • Industrial
  • Consumer Discretionary
  • Consumer Staples
  • Health Care
  • Financials
  • Information Technology
  • Telecommunication Services
  • Utilities
  • Real Estate

Investing in the stock market

You can start investing in the stock market by getting to know each country's main stock exchange.

Stock Market Indices

When people speak about the stock market, they simply refer to the regular UP and Down movement of the major indices such as the Dow Jones Industrial Average (DJIA) and S&P 500.

  • S&P 500 - United States
  • Nasdaq Composite  - United states
  • Russell Indices (Russell 1000, Russell 2000) - United States
  • TSX Composite  - Canada
  • FTSE Index - United Kingdom
  • Nikkei 225 -Japan
  • Dax Index - Germany
  • CAC 40 Index - France
  • CSI 300 Index - China
  • Sensex -India

How to invest in stocks for beginners with little money?

If you're looking for a way to invest your hard-earned money into the stock market, then a dollar cost averaging strategy is perfect for you. All you have to do is buy an equal amount of different stocks each month.

Dollar-Cost Averaging is a strategy where you make a set amount of investment into one or more stocks each month. This strategy is an excellent way for new investors to start investing in the stock market.

The Dollar-Cost Average approach is the one that many investors use to start small and build up over time. It works like any savings account where you consistently buy a set amount of stock.

For the small investor, the common approach is to make very small investments at regular intervals (such as on a weekly basis) over time.

Share

Share per unit

Number of share

Ford Motor

$6.80

70

Total =

$6.80 X 70

= $ 476

No of Share bought

Jan

Feb

Mar

Apr

May

Jun

70

$476

Cell
Cell
Cell
Cell
Cell

70

Cell

$476

Cell
Cell
Cell
Cell

70

Cell
Cell

$476

Cell
Cell
Cell

70

Cell
Cell
Cell

$476

Cell
Cell

70

Cell
Cell
Cell
Cell

$476

Cell

70

Cell
Cell
Cell
Cell
Cell

$476

Total $2998.8 within 6 months with average in strategy

If you consistently purchase ford shares within the next 6 months by using $500, you can own 420 shares of ford with a total investment amount of $ 2856.

About the author 

Income Junctions

Business Idea & Investing for Solopreneur Income Junctions helps you to find ways to make money online, get inspiration and advice to starting a business on your own, and investing tips for solopreneur.

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