SOURCE: Angel Broking
An unknown disease, later to be known as COVID-19, spread across the world since the early-2020. Ever since the pandemic broke out, the sentiment in the stock market worldwide is gloomy. The world has witnessed many financial crises in the past including the Global Recession of 2008. And, in situations as such, no one wants to lose money.
For a fraction of a second, let’s forget about the ongoing coronavirus. It is still important for anyone, willing to make an investment in the stock market, to be aware of certain things to mitigate the risk of loss. Let’s discuss five factors that every investor should know at the time of investment, be it a good time or a bad time.
Know the stock market
The stock market is a complex system where shares of publicly traded companies are issued, bought, and sold. The majority of trading in India is done on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Before diving into this complicated system, it is important, especially for a novice investor, to understand the nitty-gritty of the stock market. The stock market is made of millions of investors with diverse views. When one investor sells a share, someone else may wish to buy it. This creates an adversarial system, where one will profit and the other will suffer a loss. Thus, it becomes imperative for any individual to be well-versed about the share market before making an investment.
Trading Mechanism
In order to provide efficiency and transparency, trading in Indian stock exchanges is conducted through a fully automated mechanism that is “screen-based trading system”. Remember that the Indian stock exchange market is order-driven, ensuring the anonymity of buyers and sellers. With this system in place, the orders are matched on the basis of time and price priority, thereby creating transparency in the whole system.
What makes stock prices fluctuate?
An optimist would say the higher the fluctuations, or volatility, the higher chances of getting better returns. However, the volatility is caused when there is uncertainty in the market. It could be caused by an uncalled-for situation like the COVID-19, variation in supply and demand, or a natural disaster, etc. Also, if sellers are more than buyers, stock prices will tend to fall and vice-versa.
What to keep in mind?
You are at a safe space if you understand the two most important decisions as an investor – when to buy and when to sell. Also, as an investor, one has to have a fair understanding of the stock prices as well as analyze the events that may cause a downturn in the stock market. If this is taken care of, this will help one wade through difficult times.
Stock Valuation
The actual price of a stock is determined by market activity. When making a decision to buy or sell a share, the investor will often compare a stock’s actual price to its fair value. Unless one loves risk, one must avoid putting too much money in one stock.
It takes years to become well-versed in the financial markets and stock trading. At the initial level, one may seek guidance from an expert before heading into uncharted territory. It is fair to summarize that, as an investor, one goes through a logical as well as an emotional dilemma while making an investment.
New-age brokerage firms provide algorithm-based investment advice that allows even first-time investors to earn decent returns on their investments. Those who are new in the stock market investments should take the help of such technologies to ensure that they make the right investment decisions.
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