The stock market is the place where transactions such as buying, selling, and issuance of stocks of publicly listed companies take place. Exchanging of shares in the stock market is conducted through listed stock exchanges. These types of transactions take place on over-the-counter marketplaces which are regulated by global regulatory bodies. There are multiple stock exchanges in the world.
The stock market, share market, and stock exchange are some of the terms used to describe the stock market. The action of buying and selling equities or shares in the stock market refers to trading in shares or stocks. Apart from stocks, there are other options also for trading such as currencies, bonds, derivatives based on shares, and various more.
How does the Stock Market Works?
Stock market target investors who are interested in investing their funds with a publicly traded company. Investors can be individuals or companies. Listed companies raise funds for their expansion or to achieve any other goal. Now you must be thinking that what is the profit of investors in all this?
Investors get dividend issued by the companies, which means a part of the profit earned by the company. If the market value of the holdings of an investor increase, capital gain is another form of profit that can be earned by the investor. The prices of stocks depend upon factors such as demand, supply, and several other factors.
Although investment in the stock market is risky, but it is also an efficient way of increasing your net worth. A majority of investors have a large amount of their capital invested in the stock market. You have to experience the stock market personally to understand the mechanism and be a professional investor.
Myths of the Stock Market
People have their own thinking and myths about trading in the stock market. The habit of trading in the stock market is considered bad by the majority of the population. Some of the biggest myths of the stock market are:
Investing in the Stock Market is Much Like Gambling
It is the thinking of the majority of the world’s population that the stock market is much like gambling. This is the reason why many people avoid investing their money in the stock market. A stock of a company is an asset for an investor and gambling does not include purchasing assets.
A holder of a stock is entitled to receive the profits of the company on a proportionate basis. The stocks represent a part of the ownership of a holder in a company. Trading in the stocks market also includes calculating the future value and profits of the company’s shares. Whereas gambling does not include any amount of calculation, it is purely speculation.
However, investing in the stock market is done on the basis of the business conditions of a company and gambling is done blindly. The amount of money invested in the stock market will be used in the development of the company and the overall economy.
Stock Market is not for a Middle-Class Investor
A higher number of the population thinks that investing in the stock market is only for rich people. Investors can invest a small amount of money in the stock market. There is no minimum requirement for investment in the stock market. If you don’t want to invest a large amount of money then you can also invest in companies with lower stocks value.
A wide range of data and research tools are available to calculate your investment and the probability of return on the investment. You can even invest your monthly savings in the stock market to generate some extra income.
Trading in the Stock Market is Only for Experts
Another myth about the stock market is that people think it is only for experts and beginners should not invest in the stock market. It is completely wrong, as beginners can also invest in the stock market. One will develop understanding and experience after diving into the market. In other words, you have to start trading if you want to understand the stock market.
It is a process of learning and the more you will spend time the more it will develop. Investors who are interested in the stock market should open a trading account and start investing in the stock market.
Lower Prices of Stocks will Always Rise
A stock that is currently trading at the lowest value will go up in the future is a myth. The price of a stock depends on multiple factors which can reduce and increase the price of a stock. As an investor, you need to study all the factors and if the factors are favourable then only the price of the stock will rise.
Having a higher price in the past does not give the guarantee that the price of a stock will rise in the near future. Investors buy stocks of the companies which expect growth and not the companies which are having low stock prices. Do not invest in the stocks market blindly make proper calculations before investing.
Small Piece of Knowledge is Sufficient for Investment
To begin investing in the stock market you need to do proper research. A small piece of information is never sufficient for investment in the stock market. If you lack time for research, you can get the service of an advisor for better decision making.
It is recommended to invest in the stock market after detailed research and understanding. This is to reduce the risk of your investment and generate higher profits.
High Risk Means High Returns
It is a fact that usually, an investment with higher risk provides higher returns. High returns are not always achieved with higher risks but it is achieved with favourable conditions. The causes of risks and the factors that can generate returns need to be studied carefully for better decision making. You can lose your money while always trading with high risks.
The most important quality of an investor in the stock market is patience. You might have to wait for a little while to grab a profitable opportunity. Sometimes, you need to invest your funds with various small stocks and wait to earn the profit.
Easy to Beat the Stock Market
There are many people who think that they can beat the stock market. Instead of investing in some stocks, people invest in the whole stock market but it also requires proper understanding and knowledge of the market. They believe that by this action they can beat the return of the stocks market.
All this does not require any study of the market and the returns are also not guaranteed. So, it is better to invest in the stock market after analysis and getting proper knowledge. You can even lose your investment by playing like this in the market.
A Good Company Always has A Good Stock
It is one of the most dangerous myths that people follow. It is not always guaranteed that the stock of a good company will always perform good and generate good returns for the investors. Sometimes companies are overvalued and because of this, their stock prices rise. However, overvaluation is not permanent and the stock prices of a company might fall very low.
The market does not capture the sentiments of the general public. In short, a favourable company can perform worse in the stock market and even an unfavourable company can generate higher returns for the investors.
The Stock Market Always Generate Losses
There is no doubt that the stock market is volatile in nature. If a business can fetch profit then it can also suffer loss sometimes. Similarly, the stock market can also generate a negative return sometimes for the investors.
Investors need to time their investments and keep them invested for a long time in the market. You can also seek professional advice if needed for better decision making. After a duration of time, your investment will fetch a positive return also.
These are some of the myths associated with the stock market. If you want to understand the mechanism of the stock market you have to start trading in it. And for investing you will need proper knowledge and study of the factors so that you can fetch profits with your investment.
Biggest Stock Exchanges
The stock exchanges act as a marketplace for investors or traders. On a stock exchange, you can buy and sell shares of publicly traded companies. There are several stock exchanges that are operating globally. The leading stock exchanges in India are:
Bombay Stock Exchange (BSE)
National Stock Exchange (NSE)
Calcutta Stock Exchange (CSE)
India International Exchange (India INX)
The leading stock exchanges in the world are:
New York Stock Exchange (NYSE)
National Association of Securities Dealers Automated Quotations (NASDAQ)
Tokyo Stock Exchange (TSE)
Shanghai Stock Exchange (SSE)
European New Exchange Technology (EURONEXT)
These myths stop investors from trading in the stock market. It is obvious that everything needs a little patience and efforts to earn money. You cannot avoid this opportunity of investment by listening to people opinions. Investing in the stock market does not require a large capital investment as you can start with small investments also.
Study all the factors affecting the stock market and analyse where you should invest your money. You can also take professional advice if needed, it does not cost much. Start with a little amount and understand the mechanism of the stock market.