Discover All Of The Insider Techniques That
The Pros Are Using With Great Success
How
Investment Works
Any
time you are going to be putting your money into a fund; it is a good idea to
start by understanding what you are buying into. The stock market is a complicated entity, and
doing minimal business in trading requires a fair amount of basic knowledge, as
well as the understanding and acceptance of the high risk factor. The more you know in advance regarding the
functionality of the system, the less likely it is that you will take a heavy
hit, ending in devastating loss.
First
of all and probably most important in the trading business, you should
understand what stocks actually are.
When you buy or sell a stock on the open market, you should keep in mind
that you are dealing with real objects, not pieces of paper; you are buying and
selling real parts of a particular company, its product, or some other various
commodity.
Owning
a “share” means that you have actually bought into the company or product
involved and become a partial owner of that commodity. Of course, you could be one of millions of
shareholders, as most companies and products are broken into minute pieces of
the whole, but you are still considered an investor in that company or product
until you sell your shares.
Think
of it as paying for a tank of gas in the car that your parents bought for you
to drive. You may have even bought the
oil filter that has been put on the car, and you may feel that this investment
makes you part owner. However, when you
look at the overall cost of the car, you have really contributed very little to
that amount. However, as long as you
continue to invest in the gas for the car and take care of the maintenance
needs, you can claim part ownership of the car.
Because
the value of a company and its products or services can fluctuate continuously,
the value of the stocks you hold will not be the same from day to day and can
sometimes even change hourly. When the
price per share drops and is considered low, it is an ideal time to
purchase. This is the least expensive
way to begin your trading venture, and working with a stock broker will allow
you to gain more information as to what stocks are ripe for the purchase at any
given time.
In
doing so, you become a stockholder, and the value of your holdings will
fluctuate from day to day. Your gamble
(and hope!) is that the value of the company or product in which you have
invested will increase or rebound from the low price at which you made your
purchase. This is the goal of all traders and means that your stock will become
more valuable.
As
the value of your securities increases, so does your net worth. When the price of the stock in your
possession reaches a high point, it is time to sell, making a profit on your
original investment. Ideally, you will
always sell your holdings for a reasonably higher price than the purchase
amount and should never sell when the current value of the stock is below your
initial purchase price. It is important
to make sure that you do not purposely take a net loss because there are plenty
of occasions when you could be forced to take a loss.
For
example, if you purchase shares of a company at twenty dollars each, you should
never sell them for eighteen dollars apiece.
If possible, you want to hold off until they are each worth perhaps
forty dollars, in essence doubling your money.
Of course, this is just an example, and not all stocks will ever double
in value, but the illustration is meaningful.
There
are other, more complex ways to invest in the stock market. However, much like learning to ride a
bicycle, you do not want to make your first attempt without training
wheels.
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