(ThyBlackMan.com) US stock market like any other stock market is a volatile place to be. It is driven by an intelligent mix of market research, speculation and companies’ performances. The companies growing and giving back to the investors create money earning opportunities. The investors show their faith in the vision of the companies and make money by earning dividends declared by the companies in return. The margin by which the investment grows is far higher than a deposit one creates in a bank.
If you are a beginner, it is essential for you to study US stock market closely. It helps you identify the money making opportunities and also helps taking important decisions regarding holding or selling of stocks.
Understanding Stocks
Stock is the single unit of ownership that you have in any company. The price of the stock may rise or fall as per the trading sentiment towards it in the market. These sentiments fluctuate as per the company’s performance. If a company bags a new contract or books profit, the outcome of this event is reflected in the form of rise in price of stock. Similarly, the losses booked or closure of any project or announcement of any policy leading to increase in expenses of the company results in decrease in price. So, a trader needs to keep close eye on the company’s performance, economic condition of the country and other factors to make things rocking as an investor in stocks.
Rules worth considering for investing in US stocks
There are certain unspoken rules one should know about investing in stock market. An investor can have a rulebook of his own too. But, the ones which are commonly advocated by the experts are:
a. Study the market and the company thoroughly
You must add a lot to your knowledge about the functioning of markets if you want to learn how to invest in stock market. What factors cause the markets to crash or rise, how much is speculation responsible for the market growth pattern, and etc. are some of the questions that should be explored. The stable government, inflation, economic and trade policies are some of the economic-political reasons that are also responsible for the emerging market trends. So, you can derive a pattern in the market movements corresponding to these changes taking in the country and make speculations for future to create profit-making opportunities.
b. Learn the language of stock broking
Once you are confident of the decisions, you must prepare further to indulge in real action. You must understand the meaning of call, put, bullish, bearish, future & options and various other important terms commonly used in stock market. The knowledge about how intraday works, what it means, how it generates profits and what the challenges you might face, for example, can help you making quick bucks during the day. Once you have mugged up all the concepts of trading styles, you can decide which tool to take out from your arsenal.
c. Find the correct time to invest
All trading support programs running on the TV and on trading sites offer a readymade time-table for you to try trading to make profits. You simply need to identify the trading opportunity for yourself and go into the action as per your risk appetite. There are very valuable times like a very start of the day which is considered the best for placing intraday orders. Similarly, there can be other times when you find other trading styles quite beneficial. Those who do not get chance to invest aggressively can also take SIP (Systematic Investment Plan) route to spread the investment amount over a chosen period. Thus, knowing the correct time helps a lot.
When you have made ample profit, it is important to set up an exit point and not give into the charm of higher returns and keeping the money stuck. Thus, exiting at the right time is also important for investing in stock markets profitably.
Risks associated with US stock market
A country is not functioning on its own anymore. Its relationships with other countries are quite instrumental in shaping the economy on the whole; US in no such exception. Risks associated with the US stock market are quite similar to those of the other stock markets, such as:
- Sudden change in attitude of investors towards a product or service
- Companies struggling to minimize the operational cost and increasing margins
- Inflation that actually decreases the value of currency
- Inter-country movement of knowledge and workforce causing change in the buying capacity of common people on the whole
Whatever the risks are, investors need to be ready always with a backup plan to save the money pumped into the market. Money earned out of investing some money is another focus and is considered an icing on the cake. Higher earnings are what the investors aiming at when they choose to put in the money in stock market while combating the risk factors.
How to mitigate risk while investing in stocks
The most common strategy for mitigating risk is diversification. Diversifying means the trader chooses stocks from various companies belonging to different sectors. This allows the trader to spread the risk. A loss made in one sector can be compensated against the profit made in another. Thus, having a right mix of stocks is the key to trade safely in equities.
Have a right mix of debt and equity instrument is another way to spread the risk. Debt instruments come with a guarantee of fixed returns. So, you can choose some fixed return instruments for clubbing them with pure equity ones. Thus, you can have better peace of mind while investing.
Another way to reduce risk is to set the realistic aims of returns. Not all stocks are meant for long term investments. Some stocks give their best within six to one month of holding too and there are certain others that are highly volatile and can give fabulous returns in even intra-day orders. So, keep a close eye on the short term and long term performance of the stocks and then choose the scrip accordingly.
Staff Writer; Doug Moore
