Investing in stocks Increases your wealth a lot, before Investing in Stock Market, firstly You need to know how the market works. And also have to know some fundamentals of the market, then you will be able to decide which stock is better for you and which stock can give you more profit in the future. So, you will have to Understand about Share Market. In this article, everything will be explained to you step by step. So, I hope you will read the complete article.
What are Stocks
In finance Stocks(also capital Stocks) consists of all share by which ownership of a corporation or company is the dividend. The word “stocks” also refers to the share. Singal share of stocks means fractional ownership of the corporation in proportion to the total number of shares.
Stocks can be bought and sold privately on stock exchanges. (There are different types of stocks in different countries) and such transactions are typically heavily regulated by Governments to prevent fraud protect investors and benefit the larger economy. The stocks are deposited with the depositories in the electronic format also known as the Demat account. As new shares are issued by a company, existing shareholders, ownership, and rights are diluted in return for cash to sustain or grow the business.
Types of Stocks
Domestic and International Stocks
Common Stocks and Preferred Stocks
Most people Invest in common stocks. Common Stocks represent Partial ownership in a company, with shareholders getting the right to receive a proportional share of the value of any remaining assets if the company gets dissolved. Preferred Stocks work differently, as it gives shareholders a preference over common shareholders to get back a certain amount of money if the company dissolves. Preferred shareholders also have the right to receive dividend payments before common shareholders do. The net result is that preferred stocks as an investment often more closely resemble fixed-income bond investments than regular common stocks. Often a company will offer only common stock. This makes sense, as that is what shareholders most often seek to buy.
Large-cap, Mid-cap, and Small-cap Stocks
Stocks also get categorized by the total worth of all their shares, which is called market capitalization.
Large-cap Stocks= Stocks having a market capitalization of $10 billion or more.
Mid-cap Stocks= Stocks have a market capitalization between $2 billion and $10 billion.
Small-cap Stocks= Stocks having a market capitalization below $ 2 billion getting treated as small-cap Stocks.
Domestic and International Stocks
The only difference between Domestic Stocks and International Stocks is the location. you can choose your stock as per your location. Most investors look at the location of the company’s official headquarters.
However, it’s important to understand that a stock’s geographical category doesn’t necessarily correspond to where the company gets its sales. Philip Morris International is a great example, as it’s tobacco and other products exclusively outside the country. Especially among multinational corporations, it can be hard to tell from business operations and financial metrics whether a company is truly domestic or International.
Growth Stocks and Value Stocks
Growth Stocks= Growth stocks tend to have higher risk levels, but the potential returns can be extremely attractive. Successful growth stocks have businesses that tap into strong and rising demand among customers, especially in connection with longer-term trends throughout society that support the use of their products and services. Competition can be fierce, though, and if rivals disrupt a growth stock’s business, it can fall from favor quickly. Sometimes, even just a growth slowdown is enough to send prices sharply lower, as investors fear that sharply lower, as investors fear that long-term growth potential is waning.
Value Stocks= Value stocks, on the other hand, are seen as being more conservative investments. They’re often mature, well-known companies that have already grown into industry leaders and therefore don’t have as much room left to expand further. Yet with reliable business models that have stood the test of time, they can be good choices for those seeking more price stability while still getting some of the positives of exposure to stocks.
Many stocks make dividend payments to their shareholders regularly. Dividends provide valuable income for investors, and that makes dividend stocks highly sought after among certain investment circles. Technically, paying even $0.01 per share qualifies a company as a dividend stock.
Penny stocks are common shares of small public companies that trade for less than one dollar per share. The U.S. Securities and Exchange Commission (SEC) uses the term “Penny stock” to refer to a security, a financial instrument that represents a given financial value, issued by small public companies that trade at less than $5 per share. Penny stocks are priced over-the-counter, rather than on the trading floor. The term “Penny stock” refers to the shares that before the SEC’s reclassification, traded for “pennies on the dollar”.
What is the risk in Stocks market(Definition)
Before investing in the stock market, we have to understand what is the risk. In these simple words, we can understand that risk is another part of a business. Risk has become a part of every business in today’s date. If a man does not take risks then he will not be able to start any business in his life. Different types of businesses have different types of risk. Let’s come to the point, before investing in the stock market, we have to understand their risk, and what types of risk can be there.
These are the common types of Risk involved in the stock market
Market Risk= Market risk is a common risk in the stock market it depends on price fluctuation in the market. When the market the index goes up and down throughout the day. And many times it gives losses to many investors, and it may affect the returns from a stock. And when the market falls, it also brings down the prices of many stocks.
Company Risk= As we know share is a piece of ownership you get in the company, as a stock investor. When the market goes ups and down it depends on the company’s performance. If the company is performing well, its stock price can witness a rise. On the other side, if losses or problems in business, a downfall in revenue, then the stock price can fall.
Regulatory Risk= There are lots of companies listed on the stock market. And all these companies are spread across various sectors, aren’t they? Some belong to the telecom sector, and energy sector, whereas others are from the financial services sector, pharma sector, agriculture sector, etc. And amongst all these, many sectors are governed by different regulatory bodies and can also involve the government as well. So, any change made by the regulator or announced by the government can impact the business of all companies in the concerned sectors, which can result in a rise or fall in its stock price drop.
Liquidity Risk= Besides gaining profits from the sale of stock, dividends are another source of income in stocks. It is mostly preferred by those preferring regular income from their stock investments. And to declare dividends, the solvency or liquidity of the company is crucial. A company with liquidity problems can cut back on dividends or at worse, find it difficult to even clear its bills or repay its debts.
Taxability Risk= The government changes taxes all the time and hence taxes may increase or decrease in the particular industry where you invested. The change in taxation can affect the stock price. Further, few industries are taxed comparatively higher than others and hence, their net profit after tax may be less. Further, taxation is controlled by the government.
Risk management methods in the stock market
Trading can be exciting and even profitable if you can stay focused, do due diligence, and keep emotions at bay.
Still, the best traders need to incorporate risk management practices to prevent losses from getting out of control.
Having a strategic and objective approach to cutting losses through stop orders, profit-taking, and protective puts is a smart way to stay in the game.
Before investing in any stocks you should have planning about those stocks, without planning you can’t choose the right stocks.
If you choose stocks with good fundamentals then only you can avoid the risk, and always keep stop loss(SL) in our stocks.