Most people hear about stock trading and wonder so much how comes some are so rich out of trading in stock. I did some research to help people more so the beginners like me understand what goes on.
First up,what’s a stock?
A stock or share represent ownership in a company.
Stock price is the current Market price of a single stock in that company. Every minute a thousand of these stocks are traded in Stock exchange like Nairobi Stock exchange (NSE).
Buyers put in bid price at which they’re willing to buy stocks while sellers put in ask price,or the price at which they’re willibg to sell a stock for.NSE brings these buyers and sellers together assisting them settle the transactions in a flash.
When putting in buy or sell order with the stock broker, you’ll be able to choose the minimum ask price for selling stock or maximum bid price for buying stock allowing you to make the trade that you’re comfortable with.
Number of stocks being traded by a single company over any period of time is the Market volume. Any increase in volume means that people are trading in stock quite heavily based on news and information about a company.
The Market capitalization of a company is it’s total value as determined by the stock Market.
I.e Market capitalization =
current stock * number of outstanding price. Shares.
It gives the size of the company.
Larger or more established companies have less volatility in their stock price but also less room of growth while smaller or newer companies have greater potential price appreciation and more volatility.
Day range is the lowest and highest price that a stock is traded for in any particular day while in a year it is it’s 52 week range. It gives you a fast picture of how much the stock price has fluctuated jn the past year.
Why do people invest in stock?A question seemed to be asked by everybody about to invest in stocks. The answer is simple to make money. But there’s no specific formulae ir magic. All that matters is how Good you are in predicting the the next second and beyond.Stocks can appreciate in price, creating capital gains, or an increase in value of your assets, which grow your wealth.
What differentiates stocks from other kind of asset like cash,gold etc us that companies generate earnings, therefore provide goods and services hence generating profit which creates income. Other income generating assets include real estates and bonds which generate rent and interests respectively.
In the course of trading, companies take risk and shareholders in these companies are compensated for their risk through a risk premium something like a much higher returns on their money.
In graphical analysis of stocks and others assets,stocks tends to be unstable i.e they fluctuate more often.And these short term swings in prices is the reason why experienced investors continue to hold some of their wealth in assets such as gold rather than stocks (diversification)in times of stock volatility. These volatilities are even rewarded by a more wholesome returns.
In the long run inflation or general rise in price of things means that saving accounts and other safe assets makes you poor relative to what you can actually buy.The significant real returns you can make from investing in stocks is the reason why stocks are crucial ingredient in a person’s long term financial portfolio.