Any time you are going to be putting your money into a fund; it is a good idea to start by understanding what you are buying into. The stock market is a complicated entity, and doing minimal business in trading requires a fair amount of basic knowledge, as well as the understanding and acceptance of the high risk factor.
The more you know in advance regarding the functionality of the system, the less likely it is that you will take a heavy hit, ending in devastating loss.
First of all and probably most important in the trading business, you should understand what stocks actually are.
When you buy or sell a stock on the open market, you should keep in mind that you are dealing with real objects, not pieces of paper; you are buying and selling real parts of a particular company, its product, or some other various commodity.
Owning a “share” means that you have actually bought into the company or product involved and become a partial owner of that commodity. Of course, you could be one of millions of shareholders, as most companies and products are broken into minute pieces of the whole, but you are still considered an investor in that company or product until you sell your shares.
As the value of your securities increases, so does your net worth. When the price of the stock in your possession reaches a high point, it is time to sell, making a profit on your original investment. Ideally, you will always sell your holdings for a reasonably higher price than the purchase amount and should never sell when the current value of the stock is below your initial purchase price.
It is important to make sure that you do not purposely take a net loss because there are plenty of occasions when you could be forced to take a loss.
For example, if you purchase shares of a company at twenty dollars each, you should never sell them for eighteen dollars apiece.
If possible, you want to hold off until they are each worth perhaps forty dollars, in essence doubling your money. Of course, this is just an example, and not all stocks will ever double in value, but the illustration is meaningful.
There are other, more complex ways to invest in the stock market. However, much like learning to ride a bicycle, you do not want to make your first attempt without training wheels.
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