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How to Invest In Stocks

Oct 30, 2007
Investing in stock market to make capital gains is often a very tricky affair. There are thousands of stocks floating in the market, and to pick the right stock at a price that will maximize the return on investment requires deeper knowledge and insight into the stock price movements and other technicalities. If you are intending to invest in shares and stocks, then to start with, you must open a brokerage account with a stock broking firm. After that you need to learn about the different instruments which are being traded in the stock market.

For beginners one of the safest investment options is bonds, which are devoid of any risk and offer assured returns. For other investment options one must calculate the compensation factor -- the return on investment compared to the interest offered by banks. If you are new to the stock market then choose a broker who is well established and has a good track record. If you want to play safe then invest in bonds that are guaranteed by the government which tend to have lower risks.

But how does a brokerage account work? There is a simple legal agreement between an investor and a licensed broker. Through this account the investor can make investments in securities as well as place orders through the firm. So the next time you decide to buy or sell securities like stocks, bonds and mutual funds, operating through a brokerage account is one of the safest avenues for carrying out investment transactions.

Investment in stock market can be for a very short period, known as short-term investment, or it can be for a fairly longer period, which is known as long-term investment. Short-term investment can bring in good returns when the market is dynamic and there are rapid movements in stock prices. In this kind of investment the investor should be an active trader and should keep a close look into the share prices. Traders generally take independent decisions but often the weight of numbers has a direct influence on short-term prices.

Long-term investment is suitable for investors who want to earn substantial returns from investments. However, for long-term investment it is essential to identify stocks, which have greater potential for growth in future. While purchasing shares for long- term one should opt for the shares, which are well established since shares are even more risky than mutual funds. While asset management companies manage mutual funds, portfolio shares are to be managed by the retail investors themselves.

There are two major ways of judging and selecting stocks - through fundamental and technical analysis.

Fundamental analysis, as the term suggests, is concerned with the economic fundamentals which may have an effect on the stock prices such as interest rates, exchange rates, performance of different sectors, fiscal and monetary aspects of the economy and stock management. If you're a long term investor then you should familiarize yourself with fundamental analysis.

Technical analysis, on the other hand, is an extensive research on the stock price movements over a shorter period of time such as weeks and months at most. If you're a short term investor, which I am, then you should familiarize yourself with technical analysis.

In stock market investments, both short term and long term investments come with risks and therefore nothing comes with absolute guarantee. However a smart investor with deeper insight and skillful analysis of the stock prices can reap the benefit even in a volatile market condition.
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