The Essential Guide to Understanding the Stock Market

If you are looking to get started with investing in stocks and shares you really need to get to grips with understanding the stock market. While you don’t need to become an expert or have in-depth knowledge you certainly need at the very least a basic understanding. The stock market is in its simplest form just an auction but it is one with a sting in the tail for the unwary.

To help you start understanding the stock market you need to think of what makes it work. Very simply the market is driven by supply and demand. That means that if there is only a very limited number of shares in a particular company available the demand for them will be far greater than if the marketplace is awash with them. So you can see that just like an auction where there are a lot of people who want what is on offer the price will increase to reflect that demand.

Once you have grasped the concept of how the stock market works you can then begin to look at how to spot in advance whether there will be a rise or fall in demand for those stocks and shares that you are interested in.

There are many ways that investors try to work out which way the market or an individual stock will move. They will look at any number of technical indicators that they feel will give them a clue as to what may happen. Of course, outside influences can also affect matters. These can happen very rapidly without warning and send prices shooting either up or down and totally confounding the indicators.

A feature of any stock market that further complicates matters is the fact that there are several prices for any one stock. You really need to be sure which price you are referring to if you are going to fully understand the stock market. While the opening and closing prices clearly refer to the price at the opening or closing of the stock exchange each day the bid and ask one’s perhaps are not so obvious. The easiest way to remember is to realize they are stated from the broker’s point of view. This means that the asking price is the price being asked for by the broker and the bid are what they will bid for any stock you wish to sell. It’s all a matter of understanding the lingo!

Stocks and shares can be profitable and fascinating but only once you begin understanding the stock market

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