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Investing in the stock market
Investing in the stock market
Stock trading course: Learn about Stock trading
A stock trader or equity trader or share trader is a person or company involved in trading equity securities.
Stock traders may be an agent, hedger, arbitrageur, speculator, stockbroker.
Such equity trading in large publicly traded companies may be through a stock exchange.
Stock shares in smaller public companies may be bought and sold in over-the-counter (OTC) markets.
Stock traders can trade on their own account, called proprietary trading, or through an agent authorized to buy and sell on the owner’s behalf.
Trading through an agent is usually through a stockbroker. Agents are paid a commission for performing the trade.
Market makers on major stock exchanges purchase and sell shares of a certain firm on their own behalf and also on behalf of other clients, therefore reducing price variance (volatility).
Why should you buy stocks and shares?
One option you can consider if you have some extra cash and want to start saving for the future is investing in the stock market.
While investing in the stock market has a higher potential for profit than saving in a bank or building society account, the risk is also much higher.
You are certain to get at least the amount you initially invested with a bank or building society account. You are guaranteed to get all of the money you invested, up to a maximum of £85,000, back if the bank or building society goes out of business.
However, if the value of your stocks and shares declines, you might lose money as well as make it with stock market investments.
Typically, you should only consider investing in the stock market if you are prepared to commit to it for at least five years. This is due to the fact that the longer you invest, the more probable it is that you will profit from your investment.
Additionally, you won’t have as easy access to your funds if you invest in stocks and shares as opposed to keeping them in a bank or building society account. If an emergency arises, you will need to consider your options for accessing money.
See Why do I need to save? for further details on setting aside money for emergencies.
What’s the greatest method to save? has further details on additional strategies to save money.
What do shares and stocks mean?
On the stock market, stocks and shares are purchased and sold. Trading is another name for this.
The FTSE100, which includes the top 100 performing firms in the UK, is the most well-known stockmarket listing (or index) in that country.
The business invests your money when you purchase shares. If the business succeeds, you both profit. We refer to this as a return. You run the risk of losing money if the business struggles. Events in the global political and economic sphere may also have an impact on the value of your shares.
Because it’s possible to lose money instead of gain it while investing in stocks and shares, it’s riskier than other methods of saving. But the value of shares might also increase fast. Therefore, the longer you invest, the more probable it is that you would profit financially compared to if you had invested at a bank or building society. Giving you a higher return is the term for this.
Stock market investment strategies
The stock market can be entered into in a variety of ways. Direct stock purchases and sales may be the most dangerous strategy. You might lose a lot of money if the firm you select performs poorly.
However, by investing your money in a pooled investment fund, you may lower that risk. This reduces the danger of losing money if one of your assets performs poorly by dividing your funds over many safer investments and shares.
These safer assets often include a combination of cash, real estate, bonds, and gilts—government-backed securities.
Bonds and gilts are essentially financial loans made to the government or to businesses. Because you get greater assurances that you will get your money back, they are thought to be safer than shares. Interest will also be paid to you.
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