A Very Basic Guide to Stock Market Fundamentals

Learning stock market fundamentals is critical before you get involved in the market. The stock market represents one of the most amazing opportunities for people to create wealth. However, without the proper knowledge, it can swallow you up in an instant. Here are some of the basics of the stock market and how it works.

What is Stock?

In order to understand the stock market, you first need to understand exactly what a share of stock is. You might be wondering exactly where your money is going when you invest in stock. In reality, you are actually providing your money to a particular company for business use. You are actually becoming a part owner in the company. With one share of stock, you technically own a small portion of everything that the company has. You are also entitled to a portion of the earnings that the company brings in. Companies issue stock because they need money and stocks give them a way to get it without borrowing from anyone. They bring in extra owners and they do not have to worry about making a payment to the bank every month. 

Risk

One essential point to understand about the stock market is the risk that is involved. With stocks, nothing is guaranteed. Your shares might be worth $400 per share one day and $0 the next. If a company goes bankrupt, you could potentially lose your entire investment and have no hope of getting it back.

However, it is important to keep in mind that increased risk comes with increased reward. If you choose the right stock, your investment could double or triple. In fact, sometimes you get lucky and your investment is multiplied many times over. 

How Stocks Trade

Stocks are traded on stock exchanges in many different locations. In the old days, you actually received a physical piece of paper when you bought a stock. Now, everything is purchased digitally. You can open an online account with a broker and buy and sell stocks in real time. This makes the stock market very accessible to anyone and everyone. You can look at stock charts, do research, and buy the stocks from the comfort of your home if you wish. 

Stock Prices

You may also be wondering why stock prices change. In actuality, the reason that a stock is a certain price is because that is what investors are willing to pay for it. Some of it has to do with the fundamental aspects of the company, such as the financial information and the business model. Some of it has to do with what the public perception of the company is and who wants to buy into the company.

There are many reasons that a stock price could rise and fall. While we understand the basic concepts of why it does what it does, no one can accurately predict it all the time. Otherwise, everyone would be wealthy beyond their wildest dreams. The important thing is that you get in, practice the basics, and stick with it. If you can do this consistently, you will have a chance for success in the stock market. 

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