The fundamentals of investing are necessary in order to become a smart and successful investor. The various facets that culminate to form investment basics are presented to you here. Though very robust we have summarized them into what is important for you to know.
The types of investments can be categorised into three. The first is being part of the ownership of a company. It also referred to as equity securities. Stocks is an example of this. The second category is debt security. This is when a corporate organisation or the government loans money from you in promise of a profit. Corporate and government bonds are typical examples. The third category is a combination of the first two. Mutual funds fall under this category as they help you spread your funds between equity and debt securities.
Investment Risk and Returns
It should be said, your investments can make or break you. You should be able to predict and limit both market and purchasing power risks. Know how much risk you can tolerate. Also, share your risks among various stocks for example and don’t put your eggs in one basket. Returns on the other hand can be a source of financial breakthrough in your life especially when they are huge. The natural rule linking risk and returns is the higher the returns the bigger the risk and verse versa.
The Bullish Trend
This is an essential part of investment basics. When the economy of a society is doing well, stock prices will rise and many will make profits on their stocks. This trend has to be viewed with caution as they don’t last very long and stock prices may just start falling after your purchase. Someone that make money with this trend is called a bull.
The Bearish Trend
This is an exact opposite of the bullish economy. In this situation, stock prices are falling and the economy may be in recession. People are unwilling to take risks and those who sell stocks are more likely to make loss on their investments. The expert trader can take advantage of this however by predicting the end of this trend and buying stocks. The person that makes money with this trend is called a bear.
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