How does the stock market work for beginners (1)

What does holding a share mean?

Companies sell shares when they need money for their operations to pay their debts .When you buy a share, you own a piece of the company.

The price of the share in the stock market is calculated by dividing the worth of the company by the number of shares available for issue to raise company revenue.

While shares or stocks continue to trade in the stock exchange market, the company accumulates revenue to grow its business.

This is basically how stock market works for beginners, but a lot goes into investing in them.

You have probably heard that stocks are a cash cow and making people rich in a day or a nightmarish gamble in which people lose everything.

Time to burst some myths.

Time of buying and selling determines whether you lose or gain

The value of the share or the share price for this matter can appreciate or depreciate and this is the major determinant factor whether you will make a loss or profit.

The perceived value of the company changes over time even as traders continue to trade the company’s stock long after the initial public offering.

The buying and selling season therefore plays a big deal for if you buy when the market price is up and sell when it is low you will definitely lose.

How does the stock market work for beginners (2)Quantity you invest in determines whether you lose or gain

Predicting the rise and fall of the stock price is a daunting task and requires some number crunching skills.

However if you buy stocks in bulk overtime you are bound to reap a profit. Stocks investment generally does not favor small scale buying for even if you will predict right ; buy at when the price is low and sell when the price is high the returns will be minimal.

Say for example I invested $ 10,000 in 2000 stocks costing $ 5 each. If it sells when the price has risen to $ 6, I will only make a profit of $2000.

But if I invested $ 100,000 on the same stocks and sell when the price has risen to $6 a stock I will make a profit of $ 20,000. The more you invest therefore, the more you reap.

Dividends

How does the stock market work for beginners (3)Established companies may pay you dividends for the time you hold the shares either annually or semiannually.

A dividend is just part of the company profits that are send to shareholders, while the remaining portion of the profits is ploughed back into the company.

Not all companies will pay dividends.

Another basic principle of how stock market works for beginners is this; the longer you stay with your stocks the more profits you will reap.

The more you hold onto the stock before selling it the more interest it accrues which converts to be your profit.