Share market basic knowledge can help beginners to understand the investment process in share market. Before starting share investment, you must study the share market condition, economic stability of the country and future trend of market. You should start share investing after achieving sufficient knowledge about investing in share market.
If you are a newbie in stock market, you should learn about stock market basic knowledge. In this article, you will learn about 17 share market basic knowledge. Moreover, you should learn: how to save money for stock investing.
1. What is the preliminary knowledge about investing in share market?
Capital market, share market, stock market are synonymous in real sense. Moreover, share and stock are treated equivalent term in most countries. In USA, two terms are different. Share is a small part of capital. Capital market is the virtual market place. Listed companies collect capital from institutional investors and individual investors in stock market.
Moreover, companies are listed in stock market by fulfilling certain criteria, which are set by Security Exchange Commission, Central Bank and Stock Exchange Authorities. Hence, a listed company’s financial health is better than an unlisted company’s. You need to buy shares to become owner of the company.
2. How can you open B/O account and bank account for starting share investing ?
Now come to the procedures. What need to know before stock market investing is the first question you may ask. To enter into share market, you need a bank account. Then, you need to open a B/O ( Beneficiary Ownership) account.
B/O account is a separate account which is only used for buying or selling stocks. If you have a bank account, you can open a B/O account by using this bank account. By your request, your broker will tell you to fill up a form.
Later, central stock market regulator authority will provide you a B/O account number which is used for stock trading. Then, you need to transfer balance from your bank account to B/O account to buy-Sell stock.
Like this, your stock selling amount at first comes in B/O account and need to be transferred to your bank account to withdraw money. That means, your B/O account will be used as a medium of buying and selling stock.
3. What are the roles of stock market’s brokers?
You cannot directly trade stock. Buying and selling of stocks are done by brokers. Brokers act the medium of stock trading. They are authorized by authority concern to act as middle men by taking commission. Hence, you need to find out a suitable broker agency and fill up the prescribed form to get listed.
You can easily get broker house surrounding the area of Stock Exchange . Moreover, a trader can search on google to know the location of broker house. A trader should choose a cost effective service oriented broker house to invest on shares.
4. How can you choose a company’s stock for starting share investing?
You should analysis your target company by below mentioned tests:
5. Fundamental Analysis before starting share investing
Fundamental analysis consists of EPS, D/Y, P/E ratio and company’s details. In fundamental analysis, company’s past history, present situation, and future prospect are essential criteria to decide whether you should invest or not.
However, you can find company’s details in annual reports from websites, broker house, newspapers, blogs and personal sources. In many cases, company hides many information. So you need more cautious to accept any information.
6. Technical Analysis before starting share investing
You should observe the exchange index six months or more to know the fluctuation of stock’s price. Then, you will evaluate performance of your targeted company. The best technical indicator is RSI, which is suitable for stock trading. Another technical analysis is candlestick chart. Moreover, learn Value at Risk ( VaR) if you want to know the risk of your selected stock.
7. Psychological test before stock investing
Use your mental power before stock trading decision. Ask yourself- will the company’s growth increase in future? Take moderate risk to get maximum return.
8. Which market should you enter for stock investing?
There are two markets– primary market and secondary market. At the beginning, you should enter primary market by IPO (Initial Public Offering). Primary market is low risky and highly competitive. Hence, secondary market is called trading market. It is highly volatile. You need more study to invest and hold stock in secondary market.
9. How much money do you need initially for stock investing?
Minimum amount of investment varies from country to country. Initially, you should invest small amount to gather knowledge. Gradually, you should expand investment. At the very outset, you can invest small amount.
10. What techniques should you follow to hold or sell shares?
You can follow stock selling styles. You need to consider market condition and potential growth of the company. Suppose, the face value of a stock is $10. You have buy a stock by $12 as 2 dollars premium.
But, the present market value of a stock is 20 dollars. Should you sell now? That depends on your psychological test and experience. If you think, stock price will surely up, you can hold. Else, sale as early as possible. To sell, inform your broker to sell on behalf of you or you can directly put sell order by online.
11. How can you become a prudent stock investor?
By experience and research, you can become a prudent investor. However, you have to understand market situation, economic condition, political trend and stock price manipulation tactics. In recent year, it is difficult to earn a single penny from stock market, but it is easy to loss more than 1 dollar. So, you should more careful before putting your hard earned money in stock market.
12. Will stock investing get you rich overnight?
No. You can loss large amount of money within a minute. Investing in stock market is a risky business. Business consists of risk. And profit depends on risk management. So, thinking overnight rich is a shadow of possible failure.
13. Is any history of stock market fall?
Yes. In 1996 and 2010, Bangladeshi stock market saw the nightmare. In 2010’s collapse, many investors lost everything. Then, individual investors- who had a little idea about stock market- invested money in stock market from borrowing and saving.
Later, many investors committed suicide for losing money. At that time, Institutional investors were major players. And somehow they were responsible for stock market collapsed.
1996 was the first time, when small investors learnt that stock market is not a gambling to rich overnight. Many reasons behind this fall. But, I am not going to discuss the reasons behind collapse in this article. I have cited this point to inform you that stock market has black history too.
14. What is the future of stock market?
Stock market has bright future if the government, political situation and authority concern play their respective roles. Generally, business is the backbone of a country. And capital market is the live blood of business. Literally, investors are the ultimate suppliers of capital.
15. Bull market vs Bear market
When stock market is growing forward for economic growth and political stability, this market is called bull market. Bull market indicates economic stability. On the contrary, bear market indicates economic falls as stock value is growing downward in bear market.
So, an investor has to think prudentially to deal with both types of market. You can make profit in downtrend market if you know how to trade trend reversal. A successful investor can guess the bear market and takes decision accordingly. You should avoid stock trading mistakes.
16. How does stock investing work?
Imagine, you are going to buy 5000 shares from X company and per value of share is $10. But, premium price of each share is $20. Your total investment equals to 100000 dollars. Remember that per value is 10 dollars.
But, you have paid double price. If your company’s 40% shares are sponsored shares, 60% shares are publicly traded. A giant investor holds 20% shares. He is going to buy more shares. At the same time, some good investors are also going to buy more shares from that company.
Now, per share value is 30 dollars. You may think that this value may surge further. Decision to hold shares for more time. Suddenly, 20% stock holders sold all the shares at 30 dollars each.
Then, share value will fall to 15 dollars each as many shares enter the secondary market at a time. Although supply surges, demand lessens. Aftermath, you are going to loss 20000 dollars. Many reasons behind price fall. In 2020 ,Covid-19 collapsed business. Share market did the same.
17. Your decision about stock investing
In the above article, I have tried to give you share market basic knowledge regarding share investing. I hope you have learnt something. Hence, my suggestion to you that gather sufficient knowledge before investing in highly volatile stock market. Without knowledge and experience, you may not succeed in stock market.
Founder of The Financial Ask
