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The Essential Stock Market Basics Every Average Investor Should Know

There are some channels on the TV that focus solely on reporting about the happenings of the stock market specifically among the stock exchange company in Malaysia.

It can also be quite overwhelming as well, especially for the beginners. But really, you do not have to worry about all of the graphical stuff that you see on the screen. In fact, you can start trading even without knowing all the nitty-gritty details.

This article aims to provide average investors the essentials about how the stock market works. Be sure to read everything to gain valuable information so you can start trading more efficiently. So, off we go!

The Place of Trade

The trading happens in the stock exchanges. Think of this as the “market” component. The most popular ones include the London Stock Exchange, the NASDAQ, and the ever-popular NYSE or New York Stock Exchange.

Older traders make transactions directly on the exchange’s floor, making verbal and non-verbal cues to signify possible trades.

However, that is not true anymore nowadays. The vast majority of traders now make use of online platforms which is much more convenient and easy to use.

What are the Indexes?

The Market Index is just an indicator of how a group of stocks performs on a given trading day. Some of the major indexes include the Dow Jones and the Standard & Poor 500.

Because there are major market indexes, investors would just need to look at the bigger ones so that they can have a general idea of the pricing movements in a particular industry.

The Bear and the Bull

Two of the popular terms being thrown around a lot of in the stock market are the Bear and the Bull markets (sometimes referred to as Bearish and Bullish, respectively).

Basically, the market is Bullish if the prices of stocks are generally increasing. The market is said to be Bearish if the prices are expected to go down.

Truth be told, the stock market is generally bullish which is why investing your money in it will give you much better earnings than letting your assets stay in the bank.

Correction VS. Crash

This is another thing I want to discuss clearly since a lot of people interchange both of these terms (which is a mistake because they are in a lot of ways, different).

The stock market correction is actually more frequent and it is just a phenomenon where there is a general drop in market value, albeit lower than 10%.

Stock market crash, however, refers to a sudden shift in the market’s value, often crashing down when it comes to prices, and it is usually more than 10%. One of the biggest crashes happened in October of 1987 where the overall market value dropped by a whopping 23%.

Do note that crashes rarely ever happen and stock corrections happen a bit more frequently, albeit nothing to really worry about in the long-term.

Diversity is Key

Investing in the stock market in the hopes of earning big means that you have to invest your money in a company that will hopefully grow in the years to come.

However, in some cases, companies never really expand and grow the way we’ve anticipated which leads to huge losses on your part.

This is why diversification is necessary. It is just the process of acquiring a different set of stocks from different companies and industries. This is to hedge against sudden company downfalls and market setbacks.