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Stock Market Basics

Aug 17, 2007
Stock markets represent and portray the commercial and economical strength of a country. The economy of a country relies on the stock market to a great extent, since they trade in the stocks of major companies. These markets are the source of capitalism in the United States. They play an important role by raising funds for companies. Being a part of a stock exchange may seem complex to many, but you can be a part of any popular stock exchange, either with the help of a brokerage account that can be opened online, or by interacting directly with the exchange.

A stock market is a place where people who want to earn money through investment, and companies who can provide those investment opportunities, come together. The trading and investing of stocks takes place in this market. Companies need funds and in order to raise funds, they issue stocks in the form of shares in which you invest, to earn money. If the company earns profit, then you as a stockholder of that company will also get a share in that profit.

You can gain a lot on the selling floor of a stock market. It is necessary, however, for you to understand the basics of a stock market, what its roles are, and how it works. For this, a proper study of all the possible market moves is essential. This needs constant appraisal, as the market moves very fast, and there are many ups and downs involved.

Stock markets are fraught with risk. Therefore, be it trading or investing, you need to proceed with caution. It is advisable to analyze a company's profits and cash flow, the services it offers and the profit distribution pattern it follows, before investing in its stocks. If you are confident that the shares are commercially viable, you can go ahead and make an investment.

Beside the profit incurred through the sale and purchase of stocks, you can also get the benefit of dividends that profitable companies offer. As an investor, you ought to know that blue chip stocks, income stocks, defensive stocks and growth stocks are several groups under which the future shares of companies are divided.

Big companies that pay dividends without fail, and have a record of growth in profit, have their shares referred to as blue chips. You can also invest in income stocks because the companies that issue these stocks pay high dividends, and have a stable earning in the market. Growth stocks grow very fast, but may fetch you nil or minimal dividends. In order to minimize your risk you can invest in defensive stocks as their value remains constant even if the market falls.

Companies can also issue their shares abroad with the help of banks. If you are planning on investing in stocks then try to invest in companies that offer dividends along with discounts. You can do the purchasing through the brokerage, or dividends, or a direct investment plan. Since a lot of people buy shares and stocks there is a cycle of supply and demand. Depending on this cycle, various fluctuations take place in the stock market. So, try to immunize yourself from these fluctuations by investing wisely.

The stock market not only provides you, as a trader or investor, an opportunity to purchase or sell shares or stocks, but also plays an important role in maintaining the cash flow in the economy of a country. If you are interested in making money in stocks, then it is recommended you learn the basics of stock markets before leaping in.
About the Author
Joseph Kenny writes for the UK Loans Store where you will can compare UK loans and offer more information on UK secured loans and other loan topics available on site.
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