The Fundamentals of Stock Market TradingStock Market Trading
For some reason, many people are brought up with a very limited financial background. While the stock market might sound like something that’s intimidating and difficult to grasp, the basics are actually pretty easy to understand. With some fundamental knowledge of stock market trading, hopefully you’ll be able to take a more active role in your financial future.
Think of the stock market as pretty much any marketplace where items are bought and sold. As opposed to a market with physical goods like fruit or toiletries, the stock market is home to the trading of shares of ownership in companies. If you simply remember that the stock market is a place where people trade their shares in the ownership of public companies, all of the rest should follow more easily.
People who have some training in picking stocks tend to fall into two camps: the traders and the fundamental investors. Put simply, traders will buy a stock that they think can make them money in the short term, regardless of the fundamental value of the company. Fundamental investors, on the other hand, look for stocks that have good business fundamentals and are likely to experience steady growth in the long term, even if the company isn’t doing very well right now.
Unless you have a lot of time and expertise, it usually makes more sense to be a fundamental investor. That’s because you can do an analysis of a stock, decide that its fundamentals look good, and hold it for a long time. The best strategy for fundamental investing is probably somewhere in between constant monitoring of your stock and holding it indefinitely. Periodically, you should check to make sure the fundamentals of the company still look promising. As long as they do, it’s probably a good place to stay invested.
The world of stock trading is complicated by a number of outside forces called macroeconomic factors. These include the performance of the US economy, interest rates, currencies, commodities, other countries’ economies, and more. In other words, that stock you bought doesn’t exist in a vacuum. Even if it’s a sound business with good fundamentals, its performance can be harmed by poor consumer spending, negative sentiment, political uncertainty, and the overall shape of its industry.
These are just a few basic concepts about stock market trading. If you want to do well financially, it’s helpful to learn more about not only stocks, but other asset classes as well.