There’s a Latin phrase that resounds with what people should be doing before buying or investing, but sadly, they don’t. It goes as ‘Caveat Emptor’. The meaning is to let the buyer be aware of what they will be purchasing or investing in. It’s simple, right? We spend hours glossing over what phone or laptop to buy or go hunting for jobs and even homes to choose the one we can see ourselves aligning with. Then why shouldn’t we follow the same for stocks?
Stocks are one of the most risky forms of investment you can make. Without thorough research, it is like shooting an arrow in the dark. The chances of success are fairly low in that approach. Stocks are portions of the company that you can buy. Once you buy it, you are a partial owner of that company. Let us understand more terms of the stock market to understand investment better:
- Stock exchange: Consider it as a market place where traders, retail investors, institutional investors, and other entities buy and sell stocks of companies.
- Bonus shares: Companies reward their investors with additional shares. They are usually offered in a ratio format. For eg. For every 4 stocks held, an investor will get 1 additional stock. So, if you have 100 shares, you will stand to gain 25 more shares.
- Rights issue of shares: This is a right which the company offers to its shareholders. The investors get an option to buy more stocks at a pre-determined rate, lower than the market rate. The intent is to avoid an acquisition of the company and allow the current investors to show more trust in the company.
- Financial statements: For the stocks that you hold, you are a part owner till the amount of stocks you own. As an owner of the company, you can check the financial statements. These statements represent your company’s economic performance in a year.
- Futures and Options: These are trading methods used to buy or sell company stocks. Futures are standardized contracts to buy or sell an asset at a predetermined future date and price. Options indicate a right to sell but not an obligation. F&O is one of the riskiest types of trading one can do in stocks.
- Beta: This is a risk factor. In the case of stocks, beta results provide volatility in the stock market. If a particular stock has a high beta, you may avoid the same.
- Stop-loss order: When you have invested in particular stocks, you need to add a stop-loss of a reasonable limit. This will help you prevent in making huge losses that may result due to a sudden fall in the stock market.
- Limit order: This is a wise tool. It helps you purchase stocks within a particular price limit that is suitable for you. It allows you to spend what you can afford rather than go overboard.
You can make stock market investments simpler and easier for you. But to do that, you will need to invest time before you invest money.
