While seeking to expand your sources of income, thinking about getting into trading in the stock market is often a great consideration to make. However, even with the growing popularity of stock market trading, it is easy for one to feel like an ant in a jungle of information.
To get more informed on the subject of trading in the stock market, here are some FAQS that beginners have when starting out in trading that will help you out:
A stock market is simply a place where trade for financial instruments happens varying from stocks, bonds, and other commodities. There are various stock markets in different countries. The activities on the stock market vary from day trades, instrument trading, and other exchanges that enable the trade of financial instruments.
The exchanges list companies and also manage indices. An index is a group of stocks representing a theme and allows the investors to have a common gauge and oversight on the trend in the stock market. The theme can be a size or industry. Indices are also used to benchmark the performance of fund managers.
It is important to understand that trading in stock markets does not mean that you get to buy or sell directly but instead you do so through brokers. The brokers are authorized to trade in the different markets. You can also use brokerage companies that perform the same function.
The first step is to open a trading account through the broker/brokerage company. The account allows you to place, sell or buy different orders. The broker will open other relevant accounts for you that will hold the financial securities in your name.
The trading and subsidiary accounts are then linked to your personal account. Most of these processes can now be done online. Once the necessary accounts are open, you can start trading through a portal online.
Some charges you will incur include:
Transaction costs: these are paid to brokers in the form of brokerage fees. This is what you pay the broker for trading for you. Discount brokers are however making the costs continually decrease.
Taxes: In the spirit of giving to Caesar what belongs to Caesar, there is a percentage of the profit from the investment that goes to the government.
The key financial instruments traded on the stock market are:
Bonds: these are issued by companies and governments. Bonds are given at a fixed rate for a fixed tenure.
Equity shares: they are given by companies and usually give you entitlement to receive a claim to profits made by the company. This is in the form of dividends.
Mutual funds: MFs pool money from different investors that is invested in different financial instruments. The profit is then distributed to the different investors by the number of units they hold.
The decision on what to buy is dependent on your risk appetite. This is the amount of risk you can take on. Factors that might affect this include: investment timelines, goals of investment, age, and capital
Stock trading is a great way to get passive income while improving your investment portfolio. The best time to invest is now, so best of luck in your stock hunt.
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