Even though the plethora of graphs, charts and images on a financial new channel is enough to dissuade the most intelligent person from investing in stocks, actually understanding the stock market is not exactly rocket science and while some stock investment concepts are fairly complex most terminologies are easy to understand. The stock market works on basic economic principles such as demand and supply among others. When a particular company is doing well or if its products are really good or if the investors expect a growth in future; the stocks of that company will be in demand and the prices of the shares will increase
On the other hand when a company is not doing so well or the industry in which the company operates has suffered a major setback or if the economy is spiraling downwards or in case of an imminent recession; the demand for stocks may decrease leading to a drop in the price per share. These price fluctuations are seen everyday and are not only interesting to watch but are also crucial to trading in stocks. While understanding the stock market, it is essential to realize that the basic principle for making money in stocks is that the greater the risk the higher will be the reward. And in keeping with this principle; there are shares which are extremely volatile and there are significant fluctuations in their prices every day or even every hour and there are the blue chip stocks that hardly fluctuate at all.
If you are wondering why anybody would want to put in their hard earned money in a volatile investment environment like the stock market, you need to remember that often the returns significantly outweigh the risks and in this case understanding the stock market and making stock investments can be lucrative.
When you invest in stocks, you are putting your money on the probability of the upward or downward movement of the stock. A part of the risk is accurately calculating the direction of price movement and the time frame of such movements. So in essence, the key to make a killing in the stock market is to get educated about the factors that impact the price fluctuations and the time of price movement.
First time stock investors are often in a quandary when it come to understanding the stock market terms; for instance, it is very common to hear the phrase “Dow has slipped by so many point” on financial news channels. This phrase means that there has been a downward movement in the prices of the stocks listed on the Dow Jones Industrial Average. This along with NASDAQ is one of the stock market indexes which is an indicator of the performance of the stocks listed on it. It is imperative to understand the stock tables, market indexes, measure of trade volume and investment strategies for understanding the stock market. You will also need to learn about the role of stock brokers and specialist in stock trading before you venture into the world of equity investments.