Understand once and for all how stock market works

People are becoming increasingly interested in learning how the stock market operates. This tendency is logical; after all, if the compensation in fixed income assets starts to decline, at least in nominal terms (without taking inflation into account), it is natural for investors to seek alternative ways to enhance their profitability.

As a result, most of them get interested in the stock market and the possible return on variable income. If this is also your aim, know straight away that understanding how the stock market works is critical in order to make judgments based on fact rather than simple “guess”. The content here is for informational purposes only and does not have advisory content.

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Do you know what stocks are?

Basically, this is the minimum share of the capital of a company, whether public (listed on the stock exchange) or private (limited to a small number of partners). In fact, whomever purchases a business’s shares becomes a partner or shareholder in the company, with rights proportionate to the amount of shares purchased.

Going public, or entering the stock exchange, implies that a company has the opportunity to receive long-term finance to carry out projects. When a firm launches shares for the first time in the so-called primary market, the resources from the papers are sent straight to the organization’s cash.

Second, in the secondary market, assets are traded between investors, sometimes on behalf of buyers and sometimes on behalf of sellers. In the second case, only money and shares are exchanged between these market players without direct intervention from the issuing company.

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How does the stock market really work?

In general, investors benefit in the stock market via share appreciation, which means they purchase assets at cheap prices and resale them at higher ones. It is also feasible for a more sophisticated investor to profit from dropping prices; however, such a strategy necessitates a better understanding of how the stock market operates in order to prevent costly blunders.

As a variable income investment, stock/share prices are characterized by highs and lows, providing a variety of opportunities at different times of the day.

Medium and long-term investors, on the other hand, typically utilize fundamental research to profit from asset appreciation over a longer time horizon than two years. In this case, the company’s investors evaluate the company’s own general and economic indicators to reveal the company’s growth potential and the resulting increase in the company’s estimates.

In general, short-term investors use graphical and technical analysis to identify opportunities for profit in the stock market. For this reason, they study price fluctuations over a period of time to predict the evolution of quotes and position themselves in the most appropriate way to earn money.

Although variable income offers a larger profit potential than fixed income, it is critical for anybody considering investing in the stock market to first learn how the market operates.

Translated and adapted by Billpay

Source: André Bona