When it comes to the stock exchange there are many prejudices that may surface. This market is a place where everyone is full of doubts and rumors spread like wild fire. People see the stock exchange on movies and TV shows as a place where traders yell at each other and make signals to move large amounts of money. It may seem intimidating at first, but in reality, the market is way simpler than it appears, but it still is an environment where many perform through irrational methods.
One of the irrational methods that do not fit in this market is gambling. Traders often guide their actions through rumors, analysis of the company’s performance and other pieces of information that, although are not based on hard facts, may serve to guide the actions of the trader. Gambling is an irrational method that is certain to fail in this market. A trader may choose to arbitrarily buy or sell a particular stock and turn out to be successful on the first tries; but in the long term, the inexperienced trader that relies on chance is bound to fail.
Buying a stock means being the owner of a fraction of the company. As a shareholder, you are entitled to a certain amount of the profits generated by the company. The amount of money that is sent to the shareholders as their part of the earnings is known as dividend, and this amount varies according to the company’s performance as a whole. On other markets, traders speculate on the financial instruments because they are able to predict whether the price will rise or drop, according to several factors that affect the market’s behavior. On the stock exchange this is not the case at all. Since the financial instrument that is traded on this market corresponds to a piece of a company, the price is always expected to be on a rising trend. This does not mean that it is mandatory for prices to go up all the time, but every company aims to be successful, and this means that it will grow and gain larger amounts of profit as it develops in the market.
Another misconception is that the stock market is exclusive for businessmen just like we see in movies. Now it is easier than ever to place trades on a stock market. You can do so by yourself, or you can contact an independent trader through the internet to perform the trades you desire. Individual traders are often better than institutional traders because they are able to follow their own leads, rather than sticking to a set method of investing by a board of directors that are not always aware of the market’s circumstances.
Many beginner traders believe that stocks behave like other financial assets such as gold or currency pairs, whose prices tend to rise and fall without any limitation. Many believe that it is possible that a company’s shares that are constantly dropping in the market, will eventually rise. This is not the case on the stock exchange. It is common for companies to go out of business without any chance of recovery. One must not be foolish enough to invest in these companies, which will mean a surefire way to lose money. The main goal to buy a share is to expect some sort of development and to gain profits. It is not advisable to invest on a company whose performance seems to be getting worse as days pass. The better option is to just find another company to invest in, one that is more stable and that seems to be growing at a steady rate.
On the stock market the general goal is to earn constant profits by owning the right company shares at the right time. It is not like other markets where traders seek to speculate based on the price. On markets such as forex, traders buy large amounts of financial instruments expecting for it to either rise or drop in value; the direction of the fluctuation will indicate if they earn a profit. On other markets, traders are able to earn profits even if the price of the asset drops significantly; even so, many trade using this approach and manage to earn large profits. The difference is that this type of speculative trading is not possible in the stock market, since the performance of a company is always expected to improve, which in turn will yield profits to its shareholders. A successful company will provide benefits for its workers, directive and shareholders, so it is to every participant to work in favor of the company. Shareholders are also able to influence how the company works since they own a specific amount of the company’s actual funds.