LIBRARY | Idiots guide to the Stock Market

Stock Market
Investments, Personal Finance |2 months ago

The Elusive world of stock markets

For those who are unfamiliar with the stock market, seeing the news’ coverage of FTSE can be incredibly alien. But with events in the political world impacting on daily lives, it gives pause for how things like stocks affect us. The old stereotype was that stock trading is the game of wealthier more aggressive type of people. But with the rise of phone based selling apps, this connotation looks set to be transformed into an intergenerational play.

There’s also the prospect of many of you being interested in rolling up your sleeves and trading too. We hope that this article hopes to shed some light into the spectacularly elusive world of stock markets!

London’s stock market has gained a worldly reputation with a well earned historical renown, making up the third largest stock market worldwide. With more than £23Billion traded in the first week of September alone, it’s an initially daunting prospect to get involved in a seemingly high stakes game. But with the last few years have seen online trading explode onto the scene, invoking much curiosity.

Common knowledge is that it all boils down to buying and selling ‘shares’ of stock in a company. The first question is probably why private companies sell shares; larger companies need some form of economic input. The two ways that it does this is through selling shares called  equity financing’, the more desirable method. It’s desirable because it’s cheaper not having to repay interest on ‘debt financing’ compared to the positives of selling shares.

One positive is that any profits made from selling shares are either redistributed to the shareholders, by issuing ‘dividends’. Companies either issue dividends to thank shareholders or reinvest as a means of developing equity, they’re called ‘Growth Stocks’.

Now that there’s more background to shares, we’ll go into more detail about how they work, and how to buy and sell.

How to buy and sell shares:

Buying shares is an intimidating idea and even more arduous for those completely unfamiliar, but it can be quite thrilling. It’s worth knowing that it’s not as simple as yelling out what you want to buy and how much. You can get to buying/selling shares through using one of these methods:

Online Broker:

An online broker allows you to bypass the old stereotype of ticker tapes and a lot of yelling by buying shares from your computer. Trusted and known banks along with strictly online agencies make up top contenders for the online brokerage. The advantage is that you’re able to sidestep higher fees which traditional stock brokers subject you to while having a greater say over investment. The drawback is that brokers are strategists, who can impart solid advice and without that, newcomers may find themselves lost right from the start.

Traditional Stockbroker:

As I mentioned previously, shareholders and stock brokers develop a long term working relationship, each mutually benefitting from the other. There are extra fees incurred, the advice given is valuable especially for those brand new to shareholding. A broker acts as the eyes and ears of your long term business strategy, helping to prevent overly-impetuous buyers as well. The disadvantage with this route, however, is that the relationship is still one of broker and a client among many. Being hands-off can induce paranoia to those used to being in control, or with a lot of money at stake.

Financial/Wealth Advisor:

Financial advisors tend to be more impartial when it comes to investments, in contrast to Stock-Brokers who have some biases. These advisors tend to be all rounders, looking to save money for their clients across a broad range. The difficulty is that these advisors are all rounders financially, so the level of experience they have with shares can fluctuate significantly.

Make sure to do your research on companies and be sure of your short/long term aspirations before plunging in. Keep an eye on the long running trends of stocks to determine when they’re low/high and look for competitor prices. One tip is to buy shares in multiple companies; investing in only one is risky. You can then directly buy the shares at the desired amount online or order them through your broker.

The shares will then appear in your new portfolio! Congratulations, you’ve invested in stocks! Now you have a couple of ways to invest in the future.

Ways to invest in the future

Buy shares in one lump sum:

For those that are more advanced will buy shares like this due to reacting to developments, you can decide to give your potential broker the ability to do this.

Monthly Deposits:

Ideal for those new to investing as well as people who are in shares for the long haul. This practice is common as companies like Nutmeg along with major banks buy/sell for types of savings/ISA’s. We’ll now go onto one of the key points with investing in shares, keep your eyes on the news.

Keep your eyes on the news:

The impact of news directly/indirectly has major effects on shares, so keep an eye on mergers, acquisitions, even international news. Days before Trump’s presidential victory there was a jump in the price of gold, an example of ‘good’ bad news. The reason? Many investors saw the rise, sold their shares and placed them into haven assets, a solid strategy.

Reading The Financial Times and talking to experienced shareholders will get you acclimated quickly. With anything, it is always about doing the research and making each move count for investments big or small.

We hope you learnt from our idiot’s guide and if you have questions let us know! If you have comments as a veteran shareholder, we’d love to hear your words of wisdom. 

It’s worth checking out our piece on ‘Candlestick formations’, a major component of prices on the stock market!

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