Stock Marketing Basics


For people who want to build wealth by the equity route , the knowledge of the 5 golden rules of stock investing is key. Beginners who are starting in the stock market will certainly benefit from the information. For experienced investors, it can be a refresher article. The first step into your investing journey is choosing a broker. This will be the tool you use to access the stock market to buy and sell your investments.

capital gains

Moreover, most good stocks trade at overvalued price levels most of the time. To make the task even more difficult, the know-how of stock analysis, about the procedure to do price valuation, is scarce among investors. The purpose of this post is to highlight to its readers the basics of the stock market.

In fact, following them makes even beginners execute stock investing like a professional. Phase money into the stock market by dividing up your purchases over time. On the other hand, investing in a single company exposes you to a more significant set of risks.

Purchasing common stock also gives the buyer the right to vote on company matters such as corporate policy and leadership. If you’re nearing retirement, on the other hand, and will need supplemental income soon, you may be a bit more risk-averse, or you may want to be more aggressive given your shorter timeframe. And you’re well on your way to learning the basics of the language.

Over time, with reading and experience, deeper clarity about stocks will begin to emerge. When people are first exploring the stock market, their return expectations can be skewed. The stock market is not a place where you come to double the money in a quick time. It is a place where professionals invest and stays invested for decades. A realistic return one can expect from the stock market is about 10-20% per annum. Buying ETFs and mutual funds eliminates the specific risk from an investors’ portfolio.

Access to Electronic Services may be limited or unavailable during periods of peak demand, market volatility, systems upgrade, maintenance, or for other reasons. While some companies sell stock directly to investors, most only sell stock through a brokerage such as Schwab. To raise the capital, the company creates shares and sells them in an initial public offering. Then those shares are traded on the ‘stock market.’ It could be the Nasdaq, the NYSE or the OTCBB (which is considered ‘off exchange’). Being a contrarian also takes patience since the turnaround you expect may take a long time. Investment apps like Robinhood, Stash, and TradeStation are another way for people to start investing with little to no money.

Long-term investing vs. stock trading

A stock market crash occurs when there is a sudden fall in stock prices. Some such crash examples include the 1929 Great Depression, the 2001 Dotcom Bubble Burst, the 2008 Financial Crisis, and the recent 2020 COVID-19 pandemic. The prices of shares on a stock market can be set in several ways. The most common way is through an auction process where buyers and sellers place bids and offer to buy or sell. A bid is a price at which somebody wishes to buy, and an offer, or ask, is the price at which somebody wishes to sell. Indices can be broad such as the Dow Jones or S&P 500, or they can be specific to a certain industry or market sector.


Once a stock is first “opened,” or begins trading on the exchange, investors are allowed to purchase shares via their brokerage or trading platform. Growth companies in particular often receive intense media and investor attention, and their stock prices may be higher than their current profits seem to warrant. That’s because investors are buying the stock based on potential for future earnings, not on a history of past results. If the stock fulfills expectations, even investors who pay high prices might realize a profit. However—and this is an important element of investing—at a certain point, stock prices will be low enough to attract investors again.

How to Invest in Stocks: A Beginner’s Guide

To determine whether a stock is underpriced, market analysts look at a company’s fundamentals relative to its current share price. Growth stocks tend to be riskier investments and generally do not pay dividends. It was founded at the height of the Great Depression, and is designed to help protect investors through its oversight of securities laws and push for transparency among those that participate. If you’ve seen the jagged lines on charts tracking stock prices, you know that stock prices fluctuate daily and over longer terms, sometimes dramatically. The size and frequency of these price fluctuations are known as the stock’s volatility.

common stock

Learn all the ideas I’ve been trying to teach you for however long you’ve been reading my posts, watching my videos, and learning my strategies. I had been trading for around two years when suddenly the type of trades I was playing stopped. The tech bubble was about to burst and the setups I was using simply weren’t appearing. Check out this post about choosing an online broker to get an idea of some of the possibilities and learn about the brokers I use.

With time, the companies aiming to raise funds to grow their business listed themselves on a stock exchange to make their share available to be bought and sold. They introduce their stocks for investments, and the investors spent on them, sponsoring the company’s initial public offering , which finally made the stocks of the company public. Most U.S.-based stocks trade on exchanges, such as the Nasdaq or the New York Stock Exchange , which provide centralized platforms for buying and selling shares. The buyers and sellers range from large “institutional” investors, such as pension funds, insurance companies, and Wall Street banks, to smaller firms and individuals.

What causes stock prices to change?

The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. Fractional shares of stock also represent ownership of a company, but at a size smaller than a full share of common stock.

In the case of the NYSE, traders still execute trades on the trading floor. The Nasdaq is different in that it’s an electronic exchange. But in both cases, the exchange is used to buy or sell company stocks and bonds. The stock market refers to a secondary market where buyers and sellers come together to deal in company shares.

Inflation and stock market volatility related to war, supply-chain issues, and rising interest rates can unsettle even the most experienced investors. And most investors would be well-advised to build a diversified portfolio of stocks or stock index funds and hold onto it through good times and bad. The investing information provided on this page is for educational purposes only. NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments. The stock market is really a way for investors or brokers to exchange stocks for money, or vice versa. Anyone who wants to buy stock can go there and buy whatever is on offer from those who own the stock.

That’s why important to prepare yourself for downturns that could come out of nowhere, as one did in 2020. You need to ride out short-term volatility to get attractive long-term returns. When it comes to diversification, that doesn’t just mean many different stocks. It also means investments that are spread among different industries – since stock in similar sectors may move in a similar direction for the same reason. We work hard to ensure your equity orders are routed to destinations that have provided high-quality executions over time. We seek out top-performing securities exchanges and liquidity providers and rigorously evaluate execution quality.

Strong demand—the result of many investors wanting to buy a particular stock—tends to result in an increase in a stock’s share price. On the other hand, if the company isn’t profitable or if investors are selling rather than buying its stock, your shares may be worth less than you paid for them. Stocks are bought and sold constantly throughout each trading day, and their prices change all the time. When the price of a stock increases enough to recoup any trading fees, you can sell your shares at a profit. In contrast, if you sell your stock for a lower price than you paid to buy it, you’ll incur a capital loss. Because, out of about 5000 numbers stocks listed in the Indian stock market, the majority carry weak fundamentals.

  • The market operates via over-the-counter or stock exchanges that list the stocks of the companies issuing shares for trade.
  • We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site.
  • When stock market prices fluctuate very sharply, this is known as stock market volatility.
  • If a lot of people want to own part of a certain company, then that company’s stock price rises.
  • You probably don’t have months to spend on one investment but resist putting 100% of your money into the first company you find.

When evaluating offers, please review the financial institution’s Terms and Conditions. If you find discrepancies with your credit score or information from your credit report, please contact TransUnion® directly. Arielle O’Shea leads the investing and taxes team at NerdWallet. She has covered personal finance and investing for over 15 years, and was a senior writer and spokesperson at NerdWallet before becoming an assigning editor. The concept of market volatility can be difficult for new and even experienced investors to understand, cautions Keady.

The stock market is synonymously used with the share market. However, the market may differ based on the type of financial instruments and vehicles in which investors transact or deal. Equity financing is the preferred route for most startups that need capital. The entrepreneur may initially source funds from personal savings, as well as friends and family, to get the business off the ground. As the business expands and its capital requirements become more substantial, the entrepreneur may turn to angel investors and venture capital firms.

The more individual investors who want to purchase a piece of the company, the higher its stock price goes and vice versa. Such access to seemingly unlimited amounts of capital would make an IPO and exchange listing much less of a pressing issue for a startup. Some stock markets rely on professional traders to maintain continuous bids and offers since a motivated buyer or seller may not find each other at any given moment. A startup can raise capital either by selling shares through equity financing or borrowing money through debt financing.

Earnings and the Price and Value of a Stock

This quote by Ken Fisher, founder of Fisher using a free email address for advertisings, speaks to the often-overlooked benefits of long-term investing. It’s also worth noting that these investment styles aren’t mutually exclusive—a combination of both can be used in order to cover all your bases. For most patterns I trade I don’t use more than a few key indicators combined with identifying a catalyst. A catalyst might be something like a press release or earnings announcement. But what if you make a trade and lose $40K right out of the gate? That’s right, your broker will call you and ask for enough money to cover your margin.