If you’re new to the stock market, it can seem overwhelming with all the unfamiliar terms and language. To put it simply, investors buy stock, partial ownership of the company, in order to gain money. When the companies rise and fall in value, so will the value of your investment.
Be sure to keep reading if you want to learn more about how the stock market works.
What is the Stock Market?
The stock market is a way for companies and investors to gain money. When a company issues shares to an investor, they are offering a small portion of ownership in that company. Doing this allows companies to raise money and mitigate risk. Qualifying companies can offer their shares in a stock exchange, called an Initial Public Offering (IPO), instead of trying to find investors one by one.
The New York Stock Exchange (NYSE) or Nasdaq is a secondary market where investors can buy and sell shares of stock. Trading hours, which is from 9:30 am to 4 pm, is when most significant stock exchanges occur. Although some trading does occur outside of these hours, the majority of purchases should be made within this time-frame.
How Stock Prices Move
Stock prices rise and fall depending on many factors such as supply and demand, world events, company information about profits, investor confidence, and more. If there are more buyers trying to get a stock, the price will rise because there’s only so many available shares on the market. As a result, if there are more sellers than buyers, the price will decrease to account for this.
Because of all the factors that go into determining a stock’s price, it might be hard to know which stocks are going to increase. However, it’s important to keep up with any trends and beware of anything suspicious, such as guarantees of huge returns.
How to Invest
In order to invest in the stock market, you can either hire a broker, who will act as your representative, or you can open a brokerage account from brokers like Charles Schwab, TD Ameritrade, and more. Although you don’t have to have lots of money to start investing, it’s important to look for accounts with low fees. If your account has high fees, you can end up losing thousands of dollars throughout the years.
Why Should You Invest?
You might be wondering, “why should I invest in stocks when I can just open a CD or high-yield savings account?” Although a savings account could give you a guaranteed rate, the stock market typically yields higher returns in the long run. The average savings account only goes up to about 2% per year, which is a generous estimate, whereas the stock market increases about 8% per year.
However, it is important to note that there are some risks that come with investing in stocks. Your net worth goes down if the stocks you own decrease in value. If this occurs, you might want to consider selling or ride out the volatility, which is suggested if you’re investing long-term.
Author’s Verdict
Now that you know more about the stock market, you can open a brokerage account and get started in investing. As always, it is important to be smart with your financial decisions, and do extensive research to ensure that you are making the right decisions.
In addition, we have a list of bank promotions to get some extra cash in your pockets today. You may also want to check out savings accounts if you want to get started on saving up money.