Investing in stocks have become much simpler in today’s tech-driven day and age. Thanks to advancements in fintech and the abundance of investing apps and tools, anyone and everyone with a mobile phone and internet connection can participate in stock investing. But despite being more accessible, investing in stocks or any asset for that matter still has an inherent level of risk that few people acknowledge or know how to deal with. Here are some things you’ll want to know about stock investing before putting your first buy order in.
What is It?
Investing in stocks entails the purchase of a public company’s stock. The unit of measurement used by investors is called “shares”, e.g. 100 shares of company XYZ or 10 shares of company ABC. By buying shares in a company’s stock, you can make money when the stock’s price increases in value. That being said, in the event that the company’s stock price drops from your original purchase price, you may incur losses instead. This is why stock investing can be risky and why many investors perform exhaustive market analysis to minimize said risk.
How it Works
When the company’s stock increases in price, whether due to increased demand in its products/services or a recently won government contract that guarantees sizable revenues for the company, other investors may choose to purchase the company stock you are holding for a higher price than what you paid for it, which is ultimately when you make a profit. You can purchase stocks through a brokerage firm, like TD Ameritrade or Robinhood.
How Do You Choose Stocks
There are different ways to go about choosing stocks to invest in. These strategies and tools are often categorized into two main styles of investing – technical and fundamental analysis. Technical investors use historical prices to look for value and predict where markets or companies are heading in the future. Investors that use fundamental analysis, on the other hand, try to predict market price action based on macroeconomic and microeconomic factors, including market growth, revenue, central bank interest rates, etcetera.
Before making any investments in the stock market, it’s important to put a system in place that is designed to minimize capital risk and losses. Regardless of what style of investing or what company sector you focus on, risk management should be at the top of your priority as a novice investor.