TMCnet Feature
March 22, 2021

Beginners guide to understand ins and outs of stock trading

The world of trading and investing is very exciting yet overwhelming at the same time. The market is so deep and wide and one has to understand all the ins and outs correctly to be able to be a success in the same. That brings us to a very important is it worth investing in the trade market?

Well, the answer to that question is has loads of potential to offer and it's totally on to us what we make out of it. However, with profits come some losses too even if you are too careful with your dealings. Yes, it’s just a part of the game. But with careful practice and consideration, you might be able to avoid some and for that, it’s important to do your study and research beforehand. best performing stocks and shares isa is one of the best platform to learn about stocks and shares

To make this easier for you, here is a detailed guide to get you started in the stock market industry. It will prepare you for the best and the worst and hopefully with all the information intact, you will be able to make the right call.

What is a share?

Share or stocks represent a part of the company’s total value. When you have a company’s share that makes you partly an owner in that company’s value. As an investor, you can buy a part of the company’s ownership in terms of share.

In exchange for some money, you get the shares of the company and become the valid share-holder. Now, your role in the company would depend on what kind of shares you are purchasing from the company. Some shareholders only get remunerated in terms of dividends of the company while others also get voting rights. The amount of dividend will also depend on how much profit the company would be making.

What is a stock market?

Every Country has a stock exchange that regulates share trading and related practices. The stock exchanges have many companies listed on them that are selling a part of their shares either online or offline. These stock markets are where the buyers and sellers meet and the stock transactions take place.

There are many stock exchanges in the world and each of them has their country’s companies listed on them.

These stock exchanges have a market index that reflects the position of the market. This market index is calculated on the basis of the total valuation of all the companies listed on them.

The formula of the market index goes like this:

The market index is calculated by totalling the valuation of all the listed companies and then calculating their weighted average.

So, if the market index is low that means the company's share prices are falling and if the market index is high it could imply share prices are rising.

Some global indexes act as the benchmark for many markets in the world. They reflect the global position of the top international companies and how they are doing share price-wise.

Understanding the Science behind Share prices:

The demand and supply have a major role in deciding the price of any commodity and the same is true for share price as well. So, if the demand of the share is high and the supply is limited the price will be high and vice versa. Now, the supply of the shares will usually remain limited so we can say that demand of the share has the primary role to play in deciding the share price.

So, let’s see what causes share prices to increase or the demand to rise:

  • If the investors or buyers have bright hopes for the future of a particular share, then the demand is likely to rise.
  • If the company is doing very well for a consecutive period, it will lead to an increase in its demand.
  • If the related industry in which the company deals has bright prospects, then also the price will increase considerably.
  • If there is a change in the company’s management or ownership that also will impact the share price greatly. For instance, when Vodafone (News - Alert) and Idea merged it sent a wave of positive sentiment across the buyers and its share price rose.

Apart from that, there are some global aspects also that affect the share prices of not just one but multiple companies at the same time. Let’s see what impact they have on share prices:

The position of a country’s economy- If the Economy is on a trajectory of growth, all the people will have bright future hopes and they will increase the spending which will indirectly lead to an increase in share price and vice versa. For instance, during the lockdown the share prices fell to record lows but when the lockdown was lifted the market regained an even better position and the share prices skyrocketed.

Industry-specific activities also have a major role to play in the same. If a particular industry is doing very well and the government has announced some growth-oriented measures for the same then all the related companies will see an increase in their share price.

Competition has a very crucial role to play in defining the position of a company. If your competitors are doing well there is no way you can expect an increased demand for your shares. For instance, when Jio was doing well the prices of Airtel (News - Alert) and Vodafone declined considerably and that’s how it is always going to be like for all neck-to-neck competitors.

Considering all these factors, you must keep a careful watch on the market movements to understand it deeply. Share trading is not just limited to the time when you are actively engaging in trade, but it has so much more to it. You have to constantly stay updated about all the trends of the market so that you can predict its movement and turn it into a positive deal.

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