When it comes to stock market investing there are quite a number of essential and important rules, trends, and observations that need to be made. Regardless of whether you are a newbie to the world of trading or whether you are an expert, one of the most important aspects that you should understand when it comes to the stock market are the basics of how your market functions.
How Buyers and Sellers Make Money
A market by definition is a place where goods or services are traded. In other words, you have a buyer and you have a seller. In relation to the stock market, the product which is being traded is stock. These stocks represent parts of company ownership. At the root of stock trading is the fact that some companies are more valuable than others. Let’s take Apple for example. Right now it’s pretty obvious that Apple is at the top of its game. As they improve in capability, continue to churn out more products which are snapped up by the market and improve their products, their stocks grow in value because people perceive that the company they are investing in is going to be worth more and more down the line. In the case of Apple then, you would say that there is definitely a demand for their stocks.
If this is the case then it is only normal that stocks in general, which are sold in the market, now go for a much higher price than they did, say ten years ago and this is an essential illustration of how traders (or rather, investors) make money. They essentially buy stocks when the prices are at a lower price. They look at potential; they look at capability and then take the risk of buying the stocks they can. After a period of time, the stocks are, hopefully, much more valuable and thus can be sold at a higher price, thus making the seller profit.
I Need Cash Now! – Is the Stock Market for Me?
Of course, the example above is an ideal one. Remember that not all companies become valuable as they grow but the art of choosing the right stocks to buy and sell is one that isn’t perfected. If your goal is to make money on the stock market then you obviously have to be in tune with how companies perform and how they plan to expand. If you are starting off however and find yourself saying “I need cash!”, then perhaps the stock market it not for you.
Stocks are relatively riskier than other assets over the short term, and their dips and valleys in the trading cycle can be short and sudden. In some respects, this makes the market risky but profitable for those who have patience. If you come in the market wanted to make money “right now” you’ll end up doing something very dumb and someone else, on the other side of your trade, is making a lot of money due to your mistakes.
Essentially, there are 3 basic ways of making money in the market:
- Buying low and selling high
- Selling High and buying Low (shorting)
- Dividends
There are plenty of ways to make money (and we’ll go into detail in other articles) but as you can see but the important thing is to understand your market. In understanding your market, you can then make the decision as to what stock to buy and why.
This article was written by WeAreSEOguru
