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Stock Market Basics

You should strongly consider talking to a financial planner before making any investments. Your financial planner can help you determine what type of investing you must do to reach the financial goals that you have set. He or she can give you realistic information as to what kind of returns you can expect and how long it will take to reach your specific goals.

The stock market is a system and concept designed primarily for the trading of company stocks or what can also be called collective shares. Company stocks are sold in the form of shares. The more shares a person buys in a company, the higher his or her stocks are for that particular company.

The stock market is one of the most important sources for companies to raise money. This allows businesses to go public, or raise additional capital for expansion. Prices are determined by supply and demand- by sellers and buyers willingness to buy or sell at a certain price. As demand goes up, the price goes up, and so on.

The stock market is a study in human psychology as it is human emotion that drives all market action.

Millions are made or lost in a second and your future lies in your ability to buy or sell the stocks at the right time. Investing in the stock market is not for the faint of heart because of its volatile nature, it can go up where you can make money but it can also go down where you can lose money. Depending on what stocks you buy, over the long term, the stock market will probably make better returns for you than a term deposit or a savings account.

Investing in stocks is a constructive way of putting money in the market. Investing in the stock market can work in so many ways. For examples, you can buy-and-hold, buy-then-sell or even sell-first-buy-later. It is important to note, investing in stocks is part of a long-range financial picture and not a get-rich-quick scheme.

Investing in stocks of medium-sized companies may be more volatile and less liquid than large company stocks. Stock investors are also prone to such irrational exuberance, of which the most infamous was the dot-com bubble. When the sole reason for ‘investing' is the expectation of higher prices despite lack of economic soundness, then we know it is probably a bubble where speculators buy high and sell higher to other speculators. Investors can further reduce the risk through investment diversification. Choosing a portfolio with a mix of common stock, bonds and preferred stocks offers a greater protection against market risk than a common stock portfolio.

By: Shayne Harris

Shayne Harris has been involved with investing for many years and enjoys sharing his knowledge with others. Learn How The Stock Market Works.

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