Forex or Stocks

Forex or Stocks: Which is Right for You?

Stocks trading and forex trading are two options for starting investors. Both ways have different trading strategies. In simple terms, forex relies on global currencies and stocks are based on a company’s earnings. One is the most common, and the latter is the most traded. So which is better?

Trading on Stocks

It helps you build a better portfolio – Since you have a lot of choices available, you can track you progress from one stock to another and the more positive records you have, the better the investment portfolio you have.

Accessible Market – Stock markets may have a limited time in trading but its accessibility is always guaranteed. If one stock is close, you can always move in to another. The stock market is a vast place for traders and the amount of stocks available is diverse.

Easy Money – A massive probability in returns are surely guaranteed here in stock trading. Trading shares make vast returns in the stock market. Several investors create a valuable return by purchasing the stocks at a lesser worth and then marketing them after the price upsurges.

Liquidity – Every investment has an assessable fluidity – or liquidity. It determines both the amount of consumers and traders as well as the comparative ultimatum for the holding. An asset can have a great mandate but low liquidity if buyers and sellers disagree on the value.

Trading Forex

24/5 Trading Hours – The stock market is available for 24 hours on weekdays. It’s very accessible so you can actually trade in your desired time in a day.

Easy Entry – You can start trading a number of dollars with three digits for a start. The currency market is a diverse market place. Your $500 dollars can become $5000 dollars in a short time possible.

Market Liquidity – Here the regular trading habitually surpasses $4 trillion USD/Day and with an excessive amount of $1.5 trillion of that came from another form of trading – the spot trading. However, it can be volatile at times too. In that amount, it still depends on the risk you’re willing to serve. Margin based can raise the leverage and can you expect a higher return? It’s plausible.

Margin-Based – Being margin based alone can have a lot of advantages. To name a few, once you have acquired a margin based account, trading can start as soon as you want to.

See also: Understanding how a margin account works.

Those are just some of the strengths of each trading markets. Of course, one has an edge over the other that can depend on your perception as well. The decision is still in your hands. Both are good ways of investing you can try both or you can just try one. It’s all up to you.

 

You can earn bigger profits and execute better trades here at Trade12 by reading the latest market updates. Striving to become the best forex broker for you, Trade12 reviews daily market events essential to your trading activities to help you improve your overall trading performance. Register an account now and enjoy a wonderful trading experience!

Traders Fail

Why Do Traders Fail?

Investing might be a bright idea at first but it’s also a gamble in reality. One day you’re in, the next day you might be out. It all depends on what you put out there, what stocks you buy and how those stocks perform. Whether you’re discerning about your progress as a stock buyer or you’ve previously implemented your investment plan. Take this as a warning sign. Here are some common reasons why traders fail:

Also read: 5 Common trading errors that most beginner traders make.

  1. High Expectations – In order to be a successful trader, you need to exert effort for your money to grow. You should not just sit there and watch it grow because your shares would not do the job for you, it is you that should keep it moving. Trading is not just planting a seed and waiting for it to grow; if you’re expecting it to be like this then it’s not. You need to water the seed every day, put fertilizer if needed and take good of it like it’s a real plant. The point is- don’t expect so much when you’re not doing anything. If you want success, then work for success.
  1. Over Trading – This is a common problem why new traders fail. They trade so much that they don’t know that they’re actually risking a lot. Over trading is the state of disproportionate purchasing and marketing of stocks by an agent on an investor’s behalf in order to upsurge the assignment the stockbroker accumulates.

Why Traders Fail

  1. Going-Off The Investment Plan – Having a plan is essential for the success of a rookie trader. There’s a reason why it’s a plan and going off it is a sin that you might pay for later on. Trading is a risk game and risking to go off your investment plan may not always result to a good plan.
  1. Risking on a negative trade – All investments bring some point of jeopardy. Stocks can drop rate, even their entire value, if market circumstances stumbles. Well who in the right mind will invest on a falling stock? Let’s say a company loses stocks and plans to bring it up back by sending out new products. You’ll never know if it will rise or it may continue falling despite the new product. It’s your choice in the end but it is better safe the losing everything, especially when your money is on the line.
  1. No Plans at all – You know what they say, “Failing to plan is planning to fail” which is fairly true- thus, making traders fail. Observing a tactical trading plan can aid investors avoiding some of the utmost corporate trading dangers. What can result if you don’t have a plan? You’re physically marketing diminutive. Having nothing to follow is truly a bad thing so if you don’t know how to plan, you’re in good hands because you can follow a simple step by step process to making money through trading.

 

You can earn bigger profits and execute better trades here at Trade12 by reading the latest market updates. Striving to become the best forex broker for you, Trade12 reviews daily market events essential to your trading activities to help you improve your overall trading performance. Register an account now and enjoy a wonderful trading experience!

Girl trading commodities

2 of the Best Ways to Make Money in Commodities

A commodity can be used in a lot of different ways. It can be a term referring to raw materials and produce, metals, and crops.

Commodities Produce

Commodities, grains against paper bills and coins.

Making money in commodities is not an easy task. One of the reasons that make it hard is that there is no such thing as a “right time” when it comes to entering or exiting the market.

It is essential for you to understand the market in order to make profits from it. You must also learn how economics can affect the commodity prices.

Let us tell you 2 of the best ways you can succeed and make money in trading commodities:

1.     Trade Physical Commodities

1.1.           Understand the transactions

Physical commodities are bought and sold in bulk for immediate delivery in different markets across the globe. These markets are known as the “spot” or “cash” market.

Most participants of the spot market are producers, and users of commodities who are able to finance and store large amounts of commodity. These commodities are those such as refinery purchasing crude oil, a flour miller buying wheat and corn.

Because of this, you should note that individuals rarely buy commodities. Unless what they’re buying is gold, silver, or palladium.

1.2.           Buy or sell the physical commodities

You can get your hands on physical commodities when you visit specific websites or exchanges where they are sold. Standard brokerages don’t normally sell them though.

It can prove to be a rather trying task to find a reputable market to buy in online. It’s important to look for well-known authorities when it comes to deciding where to buy.

1.3.           Store the physical commodities you own

It is highly advisable that you store your physical commodities in a secure location. Physical commodities must be stored until sale.

You can also buy insurance in order to protect yourself from complete loss in case they are stolen. But both of these cut into you potential gains while adding to the cost.

You should also note that there are some gold-selling companies that offer secure storage for buyers.

Commodities metal and oil

Oil and Metal commodities together against white background.

2.      Trade Commodity-Related Stocks

2.1.           Understand the commodity-related stocks

Commodity stocks are those that move with underlying commodity prices. The correlation is determined by the company’s relation to the production or use of the underlying commodity.

An example will be, if you decide to invest in gold futures, you could then buy stocks from companies that mine it. Your risk is lower this way but you’re still participating in the market.

2.2.           Identify the commodity-related stock

You can start investing in commodity-related stocks thru searching for one that you want to invest in. You can do this by first finding one that interests you or by following market news for information.

Locating related companies can be done by searching for them in market websites.

You can then begin by looking at companies that produce, refine, or ship the commodity you chose. Or you can look for companies that use your chosen commodity as primary input to production.

2.3.           Open account with a broker

There are a lot of online brokerages out there in the internet. Any type of online brokerage will actually give you access to buying and selling stocks.

Once you’re set up, you can just put in an order of the stocks you want to buy or sell. After buying it, make sure to track the stock’s price and the price of the underlying security so that you can determine when to sell.

You can earn bigger profits and execute better trades here at Trade12by reading the latest market updates. Striving to become the best forex broker for you, Trade12 reviews daily market events essential to your trading activities to help you improve your overall trading performance. Register an account now and enjoy a wonderful trading experience!

What is a Stock Exchange

What is a Stock Exchange?

As we all know, the world has a countless amount of companies that produces billions (or even more) of money.  As a starting investor, you need to know that one doesn’t just rely on one stock. You need to trade, buy and sell stocks as well. There is such place as you can see where these are all possible: The Stock Exchange. Stock exchange acts as the market of the shares where investors come in and buy, sell and trade like what a market is supposed to be. Its market place also called as securities market where investors connect with sellers to negotiate and do businesses.

Stock markets are instituted for the purpose of helping, amending and monitoring business of purchasing, marketing and commercializing in securities. It also offers a marketplace for the transaction of securities to entities and companies in quest to invest their savings through the acquisition of securities.

Functions

The stock exchange market has several of functions but to name only a few, the most important ones- should suffice the knowledge that you need to know.

Liquidity – Stock Exchange provides liquidity and this is the most important role of the said market. The principal shares are largely for extensive periods and if shareholder desires their investment to return, the aforementioned will end in twisting up the business and selling its possessions to liberate the currency.

Investors habitually choose fluidity of their share. The stock marketplaces expedite and run that guarantee to investors. These are markets which assist in the process of purchasing and selling of securities guaranteeing liquidity of investments which serves to provide the investor’s essentials.

Market For Securities – Stock exchange provides an organized and endless market for buying and selling of securities. It serves as a network for the trade of programmed securities. Stock Exchange also offers a structured frequency for purchasing and marketing of securities.

Scope for Speculation – Speculation is what is considered to be the act of exchanging in an asset or directing a monetary operation that has a momentous possibility of dropping most of the primary expense with the anticipation of an ample expansion. Speculators normally bargain securities in expectation of growth in the values. As an outcome of their purchasing, prices do not weaken as small as might have been the instance minus their purchasing and contrariwise henceforth amending unnecessary price instabilities.

Exclusive Transactions – The entire transactions in securities in trading are caused only through its official stockbrokers and associates. The management of the interchange possesses govern on the affiliates. Falsified scams also are patterned commendably. Due to numerous guidelines and conventions, stock exchange utilizes as the curator of capitals of honest financiers.

Economic Progress – Stock exchange specifies the strength of corporations and the nationwide economy impact. It serves as an indicator of the economic conditions. This contributes the investor a binary profit-head, the benefit of the adjustment in the marketplace expense of securities can be a reserved advantage of, and furthermore, whether or not of necessity for cash they can be vended at the surviving market price.

See more: An in depth guide on how the stock market operates.

 

You can earn bigger profits and execute better trades here at Trade12 by reading the latest market updates. Striving to become the best forex broker for you, Trade12 reviews daily market events essential to your trading activities to help you improve your overall trading performance. Register an account now and enjoy a wonderful trading experience!

word dividend on top of money

Dividend Stocks: Basic Terms and Strategies

Dividend stocks can help add to your savings if you know how to do it right.

Dividend business words concept

The word dividend with red background over other collection of words related to the business.

Just like anything out there, there are basic knowledge that you should consider learning.

Here are some of them:

Terms

  • Cash Dividend

These are usually paid using the company’s current earnings or accumulated profits. Cash dividends are cash payments made to stockholders. They are paid on a per share basis. Also, they are quoted as dollar amounts or percentage of current market value.

  • Date of Record

The date used by the company in order to ascertain its shareholders.

  • Declaration Date

The date a company’s board of Directors announces their upcoming dividend.

  • Dividend

This is a distribution of a certain amount of a company’s earnings which is then paid to its qualified shareholders. It can come in the form of cash, stock, or property,

  • Dividend Coverage Ratio

This is the ratio among a company’s earnings and its net dividend to shareholders.  It’s calculated through division of earnings per share and the dividend per share. This can help you, as an investor, to determine whether a company’s earnings are enough to cover its dividend obligations.

  • Dividend Yield

A ratio that shows the amount a company pays out in dividends per year relative to its share price.

  • Ex-Dividend Date

A date which denotes when a stock was traded with no previously declared dividend.

  • One-time Dividend

A special dividend paid aside from the regular cash dividends.

  • Payment Date

The date declared by the company for the dividend to be paid.

  • Shareholder

Any person, company or institution that owns at least one share in a company. Also known as stockholder.

  • Stock Dividend

These are dividends in the form of additional shares of stock instead of it being cash.

 

Strategies

  • Dividend Income

When using this strategy, your goal is to have a steady stream of liable income. This relies mostly on safe stocks that have consistent dividends. The percentage yield tends to be lower due to prioritizing sustainability instead of yield. This is advantageous to poor economies as lower yields are easier to maintain.

  • Dividend Growth

With this strategy, your goal is to be able to reliably grow your dividend return over time. This mostly involves choosing stocks that has been known to consistently pay and raise dividends.

  • Tax Strategy

This strategy aims to help you lower the burden of taxes on your income. There have been qualified dividends in the U.S. for the past few years that didn’t receive any tax. Tax efficiency should be one of the main topics you research on for your investment journey.

  • Dividend Yield

Your goal here is to maximize dividend yield. This can be filled with chasing stocks that have the best dividend yields. It’s a high possibility that you will have a lot of turnover in this kind of portfolio due to most of the highest dividend yields being unsustainable.

Read more about 4 Dividend Stocks Investing Mistakes You Need to Avoid.

 

You can earn bigger profits and execute better trades here at Trade12 by reading the latest market updates. Striving to become the best forex broker for you, Trade12 reviews daily market events essential to your trading activities to help you improve your overall trading performance. Register an account now and enjoy a wonderful trading experience!

Why do you Need an Investment Plan

Why do you Need an Investment Plan?

You can easily get discouraged with investing if you don’t know where you are heading to, thus, it is necessary to  have a concrete plan. An investment plan serves as your stairs in attaining your financial goals. But the most basic thing for you to recognize is your current financial state and what you want to do with your coming investments.

In creating your investment plan, you have to set your specific goals, however, they have to be realistic. You can’t aim for $100,000 return of  investment if you haven’t invested at all. You have to decide where does the money you acquired from your investment go. In some cases, you may want to buy a house, a luxurious car, spend it on travel or you just want to retire early. Take note that the bigger the goal is, the larger the investment must be.

Read more: Importance of following a trading plan.

Before you invest or make an investment plan, one of your concerns should be the amount of money or funds you can honestly invest. It is necessary to estimate how much of your money you can save and you can spend. You have to picture in your mind the amount of money you can allow yourself to spend and you must obey the figures you have set as much as possible. You may check the available money that you have, your expenses and your emergency funds perhaps.Investment Goal

After you have set your goals, proceed on choosing your investment strategy. Investment expert suggests that if you want long-term goals, you should choose more aggressive and higher investments. On the other hand, if you are only after short term goals, then you might as well pick the conservative investments with lower risks.

As the theory says, you can deal with more risks if you are young due to the fact that you can handle any loss since you have more time to recover. Therefore, younger investors are advised to take the aggressive investments rather than the less aggressive ones. Remember, when you take less, you make less, so you become cautious about the risks which are significant or not.

Following your investment strategy is your investment policy statement. This will help you in your investment decisions and will serve as an outline for your investment adviser. The investment policy statement must include your specific goals and the strategies you may use to meet your plan. You can also indicate your expected return of  investment in a certain time together with the risks you are willing to take.

If you can’t meet your projected savings, then you may modify your goals. Figure out the investment plan that suits your needs and if you have to learn from the basics, do it. It is also wise to check your goals from time to time so you can make the necessary adjustments.

In some instances, a financial plan and an investment plan are used interchangeably. However, a financial plan deals more on your personal plan in areas including college and risk management. A financial plan is an evaluation of your present and future financial state which is used to perceive your feasible income, asset values and withdrawal plans in the futures.

Learn about the importance of financial investing.

When you have an investment plan, you are prepared for the possible scenarios in the future. It gives you an overview about market possibilities and it helps you reach your goals accordingly. So what are you waiting for? Start your investment plan as soon as possible.

 

You can earn bigger profits and execute better trades here at Trade12 by reading the latest market updates. Striving to become the best forex broker for you, Trade12 reviews daily market events essential to your trading activities to help you improve your overall trading performance. Register an account now and enjoy a wonderful trading experience!

Risk knob and risk levels

10 Types of Investment Risks

There are different kinds of investment risk that you can be exposed to after deciding to enter the market.

Trade12 - Road with street sign risk ahead

A road blurred by speed but with clear street sign that reads “Risk Ahead”.

Learn how to gauge your risk tolerance.

Let us discuss some of those potential risks and how it can affect you investment returns.

1.     Concentration Risk

This is when you put your investments in a small number of securities, sectors, or industries.  Remember that when you diversify, you also spread out the risk over different types of investments and geographic locations.

2.     Liquidity Risk

This refers to when you, as an investor, end up in a situation wherein you might not be able to buy or sell your investment when you want or in enough quantities due to opportunities being limited. When you decide to sell, you may need to settle for a lower price. There are also some cases where you won’t be able to sell your investment at all.

3.     Currency Risk

This pertains to when you invest in currencies, currency derivatives, or similar instruments. It also includes securities that use foreign currencies. The risk here lies in the possibility of losing money due to movement in the exchange rate.

4.     Equity Market Risk

This applies to investment in shares. Equity markets are subject to several factors. These factors include economic conditions, government regulations, market sentiment, local and international political events, and environmental and technological issues. This is the possible loss due to a drop in market price of shares.

Trade12 - Stopwatch invest in the middle of risk

A stopwatch with the hand stopped and pointed at investment which is in the middle of risks.

5.     Credit risk

This involves debt investment like bonds. This relates to government entity or company that issued the bond. The problem lies on the issuer running into financial difficulties. They will therefore no longer be able to pay the interest or repay the principal at maturity.

6.     Commodities Risk

Being exposed to commodities market can be more volatile compared to the traditional equity or fixed income securities. Changes in overall market movements, commodity index volatility, interest-rate changes, or events affecting a particular commodity or industry can change the value of a commodity.

7.     Foreign Investment Risk

Investments in foreign markets may present risks that are not usually found on domestic markets. These may be comprised of changes in currency exchange rates; less-liquid markets and less available information; less government supervision of exchanges, brokers, and issuers; increased social, economic, and political uncertainty; and greater price volatility.

8.     Interest Rate Risk

This applies to debt investments such as bonds. You can lose money due to a change in interest rate. The changes in interest rates can badly affect investments.

9.     Reinvestment Risk

This comes as the possible loss through reinvesting principal or income at a lower interest rate. This will not apply if you decide to spend the regular interest payments or principal at maturity.

Trade12 - Risk knob and risk levels

A knob pointed at minimum risk levels.

10.Inflation Risk

This will mostly affect your purchasing power if the value of your investments doesn’t keep up with inflation. Inflation has the power to wear down the purchasing power of money over time. This could mean that the same amount of money can let you buy fewer goods and services. This is mostly relevant if you own cash or debt investments like bonds. Shares are mostly covered due to the companies being able to raise the prices in line with inflation. Real estate also offers some protection because landlords can increase rent over time.

Read more about how to lower your investment risk.

You can earn bigger profits and execute better trades here at Trade12 by reading the latest market updates. Striving to become the best forex broker for you, Trade12 reviews daily market events essential to your trading activities to help you improve your overall trading performance. Register an account now and enjoy a wonderful trading experience!

Trade12 - How to be a Successful Forex Trader

How To Be A Successful Forex Trader

Here are some steps you need to possess in order to become a successful forex trader:

  • Define your objectives and type of trading

The type of trading you desire should be relative to your objectives, as well as your personality should match on your choice.

Before entering the market, it is essential that you have some idea on how it works and how you’ll be able to get there. Make clear objectives in mind as to what you really like to attain. Thus, ensure that your trading strategy is capable of achieving these objectives.

  • Select a broker

Choose a forex broker whom you feel comfortable to work with and consider the offered trading platform that matches your trading styles.

A broker that offers a trading platform will enable you to do certain analysis, while a trustworthy broker is an utmost importance. Spending time reviewing the variety of brokers, gives you enough knowledge and information. You should learn your broker’s policies, including on how he or she goes about making a market.

Learn more on the tips for choosing a forex broker.

  • Select a methodology

When choosing a methodology, you must use it consistently.

As you enter the market as an investor, you need to have keen knowledge on how you will make decisions in terms of executing your trades. Know the information you need to make the correct decisions of whether you will enter or exit your trade. There are traders who review the underlying fundamentals of the firm or the economy, and then use a chart to modify the appropriate time in executing the trade.

Trade12 - Successful Forex Trader

  • Choose the best time frame

For direction analysis, you must choose a longer time frame, while for time entry or exit, you must choose a shorter one.

A lot of traders are confused as information involves complexities that occurs when looking at charts in different time frames. What shows up as a buying opportunity on a weekly chart could show up as a selling opportunity on an intraday chart. Hence, if you know the basic trading direction from a weekly chart, and using a chart to time entry, make sure match the two.

  • Measure your prospects

In determining how reliable your system lies on your prospects. Go back on all of your trades and measure the winners versus all your losses. Then determine how profitable your winning trades were, compared to how you have loss on your losing trades.

Read more about backtesting your trading strategies.

 

You can earn bigger profits and execute better trades here at Trade12 by reading the latest market updates. Striving to become the best forex broker for you, Trade12 reviews daily market events essential to your trading activities to help you improve your overall trading performance. Register an account now and enjoy a wonderful trading experience!

Trade12 - Chart in Forex market on LED

Pros and Cons of Forex Trading

Forex Trading has emerged as a popular career mostly for those people with financial background. It mostly owes its popularity to its high liquidity, easy accessibility, and 24/7 schedule.

Learn more about Forex here.

Having a career in forex trading sees to it that you are your own boss and has the comforts of making money through your laptop or mobile whenever convenient. This is enough motivation for most people – both young graduates and experienced professionals – to consider a career in forex trading.

Trade12 - forex rates charts and graphs

Tracking, forex trading, shown in charts and figures in LCD.

Read more about your chances to make money in forex trading.

Forex trading still comes with its own advantages and disadvantages.

Let us list them down for you.

Pros:

  • Accessibility

The forex market has proved itself to be one of the most accessible markets for individual traders. Traders can set their own forex accounts within a period of one to three days while beginning with a small amount of money.

Most brokerages that offer assistance are offered online. Traders can acquire access to real-time market pricing, news, price charts, tools, and strategies.

The forex market is also open 24 hours for 5 days per week. This could mean that forex trading is more adaptable to a trader’s schedule than some other type of trading.

Learn more: Tips for Choosing a Forex Broker

  • Low costs

Forex trading can have very low costs.

Even if you think about commissions, it does not really exist for brokerages since they mostly make profits from the spreads between forex currencies. Therefore, you won’t even need to worry about it. You no longer need to think about separate brokerage charges.

This makes it considerably low when compared to equities or other securities trading that has widely varying structures.

  • Liquidity

The forex market is considered to be the largest market globally by volume. Meaning that there is usually an abundance of liquidity when it comes to trading, especially in major currencies.

Traders who work with the trading desk model at forex brokerages will be propositioned with enough liquidity for trading most of the time. The brokerage itself will normally take up the position on the other side of a trade when liquidity has a chance of being small in other portions of the market.

Know more about the best way to trade forex.

Cons:

  • High Risk, High Leverage

Forex trading is available on high leverage, which can mean that you can have profit/loss exposure a couple of times of the trading capital.

Forex market lets you have a leverage of 50:1, so you will only need to have $1 in order for you to gain access to a forex position worth of $50. While you can also gain more with leverage, your loss can also be magnified.

Forex trading can easily turn into a loss-making nightmare, unless you have vast knowledge of leverage.

  • High Volatility

All markets have the possibility of volatility at one time or another. The forex market is no exception.

If you are hoping to gain short-term profits, you could be up for some disappointment. Frorex trading has the possibility of extreme volatility some times. This can end up making your trading strategies unprofitable.

  • Light Regulatory Protection

Forex trading is an over-the-counter type of trading. Trades are not carried out a centralized exchange and have limited regulatory oversight most times.

Due to this, you might need to know your own “due-diligence” investigation of your broker’s reputation and trading practices. Knowing such things is important before you sign up and create your account.

Depending on the country you live in, you may also have limited rights to recourse when you feel like you have been slighted by your broker.

See more: Reason Why Forex Traders Lose Money

You can earn bigger profits and execute better trades here at Trade12 by reading the latest market updates. Striving to become the best forex broker for you, Trade12 reviews daily market events essential to your trading activities to help you improve your overall trading performance. Register an account now and enjoy a wonderful trading experience!

Trade12 - Stock Market Basics

Stock Market Basics

If you’re considering an investment in the stock market and the mere thought of losing money worries you, then don’t invest. The stock market is a web of complexity that is not suitable for the novice investor. Nonetheless, if you do decide to invest, there are some points you should keep in mind to prevent losses and rather increase your chances of making more money.

five basics of the stock market:
how they work and what do they react as they do.

And so we begin.

Trade12 - Stock Market Definition

  1. “Stock Market” Definition

Investopedia defines it as the market in which shares of publicly held companies are issued and traded in two ways: through exchanges or over-the-counter markets. The stock market is also one of the most essential gears of a free-market economy, being known as the equity market, and offers companies with access to capital in exchange for giving investors a part of ownership in the said company.

Plainly put, it is a complicated system where shares of publicly-traded companies are issued, bought and sold—to buy the stock, hold it for a time, and then sell the stock for more than you paid for it. Investors who hold stock for a minimum of fifteen years are the ones who usually succeed in the market. Stocks are long-term investments; however, there are no guarantees.

Does it seem like it’s a scary pit meant for gambling? Probably not—unlike in gambling where you lose everything you have at hand, when you invest in stocks, you will either win or lose just an amount. It is rare to lose it all, except for the instance you invested in a company that went bankrupt.

Be sure the company you’re buying is worth owning. Unless you simply love risk, you should probably refrain putting too much of your money in one stock.

  1. The Stock Market is an Adversary Trading System

The stock market is a group of millions of investors with, of course, utterly contrasting views and opinions. This is due to the norm that when one investor sells a specific security, someone else must willingly purchase it. And since both investors cannot be correct, it turns to be an adversarial system. One investor will profit, and the other will experience loss. So it is important to become knowledgeable and familiar on the investment you want.

  1. Factors that Make Stock Prices Rise and Fall

The media, opinions of renowned investors, natural catastrophes, risk, supply and demand, the shortage and surplus of alternatives, and political and social unrest are included in the many factors that determine the direction of stock prices. Quite complicated, actually.

Combining these factors and the all the relevant information that has been circulated, it produces either a bullish or a bearish sentiment, and a corresponding number of buyers and sellers. If there are more sellers than buyers, prices will go down. And of course, prices would go up when there are more buyers than sellers.

Trade12 - The Stock Market is Unpredictable

  1. The Stock Market is Unpredictable

An example for this number: Stock prices have been surging for a couple of years now. Investors think that a correction will come and stock prices will fall. The dilemma is this:  nobody knows what will be the cause of the selloff or when it’s going to happen.

Read about: How to Conquer a Volatile Market.

This causes investors to watch by the sidelines, holding cash, and jump as soon as the opportunity presents itself. Those who are willing to jump in despite the risk are triggered by the low cash return and it creates unease to earn apparently nothing while watching stocks move upwards.

The stock market’s unpredictability makes it almost impossible to know when to jump in when you’re on the sidelines, or when to get out when you’re in. This brings forth three issues for an investor to take into consideration.

  • Understanding the point at which stock prices are valued practically and fairly.

Market activity determines the actual price of a stock. When the decision comes whether to buy or sell, the investor often compares a stock’s actual price to its fair value. Overvalued stocks tend to repel the investor, if he were to make a practical choice.

Now, what is a fair value and how do measure it? Preferably, it would be based on a consistent formula. But there are many ways to calculate the number. One solution is to sum up the value of a company’s assets on its balance sheet, excluding liabilities and depreciation.  Due to the nature of these methods yielding slightly different results, sometimes it’s hard to identify if a stock is overvalued, undervalued, or fairly valued.

An important reminder as well is that overvalued stocks don’t always trigger the investor to sell and eventually drag the price down. A stock can stay overvalued for quite some time. This is why it is tricky to make buy or sell decisions based on where the price is in relation to some moving average.

  • The event that will prompt a slump, or a trend reversal.

To put in a simpler note: no one can predict what will happen and come in the future to cause a disruption and reversal in the trend.

  • Understanding the human decision-making process.

Humans oftentimes use logic to analyze a situation, and let emotions rule us in action.

In making investment decisions, you must be able to process the significant data and cast a good decision, since there will be investors on the other side prepared to buy what you’re selling and vice versa. It is impossible to know everything you would need to know and process it without a hint of bias, however, and thus it prompts us to make sub-par decisions at times. This happens even with the most logical and critical people.

  1. The Best Time to Buy and Sell

Benjamin Graham, the father of value investing, once said, “The buyer of common stocks must assure himself that he is not making his purchase at a time when the general market level is a definitely high one, as judged by established standards of common-stock values.”

The answer as to when to buy or sell stocks is this: the best time to buy is when others are pessimistic, and the best time to sell is of course, the opposite— when others are active and optimistic. Deciding on this matter is very crucial.

It should be remembered that when buying, the chance of a high return is bigger if you buy after its price has tumbled rather than after climbing, though it is still recommended to remain cautious. Why be attentive? Let’s say the stocks of Company A plummeted by 40 percent. The first thing to do is to ask questions—why did the stocks drop as it did? Did other stocks in the same industry experience a decline as well, was it severe? Did the entire market fall?  Assuming the other stocks in the same sector did relatively well, it can be assumed that the problem lies with Company A. It’s wise to take on and follow a buy or sell discipline.

It takes years to become knowledgeable and well-versed in the field of financial markets and stocks. While it may seem like an unnecessary cost, but we recommend finding someone you trust and ask for their guidance. After all, diving head first into unfamiliar waters alone without any proper experience may actually be more expensive.

Best of luck to you, Trader!

 

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