April 02, 2021
Everything new investors need to know before they start investing.
Breaking into the world of investing comes with plenty of terms and new areas to learn about. The key to making money in the stock market is educating yourself on the fundamentals and familiarizing yourself with what is out there. Below we discuss some of the important terms and concepts that new investors should know.
What exactly are stocks?
In plain terms, stocks are shares or partial ownership of a company in proportion to the total number of shares in the company. Companies make shares available to purchase when they go public, which means the company is now displayed on the stock market listing and investors are able to buy it.
Long vs. short positions.
Investors will utilize a wide array of investment strategies when they play the market. Sometimes investors will buy a stock and hold it for an extended period of time in hopes that it will increase in value. This is called taking a long position. On the contrary, we have short positions. Shorting is a strategy that investors use when they anticipate that the stock price is about to fall, so they sell their shares with the intention of buying it back at a later date.
Different areas to invest in.
The stock market has very few limitations and naturally, there will be plenty of areas for investors to put their money. When you hear the terms commodities, futures, and options, you may be confused about what they mean. We dissect these below.
As opposed to investing in manufactured, finished goods, people who invest in commodities are interested in raw materials like corn, gold, and oil. New investors can look at commodities as materials that help complete finished products. For example, lumber is a commodity that is used to construct a home, the final product. Or gold as the commodity used to make jewelry.
In its simplest form, futures contracts are legal agreements that predetermine a date and price to sell a commodity or asset. When someone enters into a futures contract, they are legally required to purchase or sell the assets or commodities they agreed to at the set date and price, regardless of market fluctuations. This is intended to help mitigate risks for both buyers and sellers in the event that the price rises or falls.
Stock options give an investor the right to buy or sell at a set price and date without any obligation. Similar to long and short positions, investors can trade puts or calls. Calls anticipate that a stock will rise, while puts anticipate that a stock will fall.
These are the basic terms and concepts every new investor should know. It is recommended that new investors consult the expertise of a professional before making any trades. For more information on the stock market, please visit www.front.org today.