COMMONLY ASKED QUESTIONS ABOUT THE STOCK MARKET

Becoming a trader can be an incredibly overwhelming experience, albeit an exceptionally profitable one. Stock market trading is an industry characterized by a constant need to learn, and an even greater necessity for sound understanding. By knowing everything you can about the stock market, you are bettering your chances of achieving a successful trading portfolio. If you are particularly new to the realm, then you probably have an assortment of questions of your own. So, to help you get a better understanding of the trading environment, here are answers to some of the most commonly asked questions in the industry.

HOW CAN I GAUGE A STOCK’S HEALTH?

There are various indicators of a stock’s health which can be gleaned from quarterly reports presented by publicly traded companies, to the Securities and Exchange Commission. There are a few crucial pieces of information that you can use to this regard:

  • Compare the ratio of total earnings divided by the number of investor shares to get the earnings per share.
  • The price of a stock per dollar of a company’s earnings will indicate future movements on the market. For instance, a stock with a low price-earnings ratio could either indicate hard times or a price increase ahead, while one with a higher ration could indicate a good year to come even though they will have to maintain those performance statistics.
  • The price-book ratio will tell you what stocks are valued at in comparison to what shareholders are willing to pay for them. A value of less than one indicates that the stock is trading for less than its value, which means it could be a good time to buy; though this should only be used when comparing stocks of the same type.

WHAT IS A DIVIDEND?

In a nutshell, a dividend is a portion of the company’s profits which are paid to shareholders. They are generally paid out per share on a quarterly basis, and act as an extra incentive for investors to buy shares. Higher dividends generally leave little room for more growth, essentially generating less of a long-term profit; except in cases where start-ups are concerned. For this reason, not all companies pay dividends to investors, allowing more room for development.

WHAT DOES SHORTING A STOCK MEAN?

By borrowing stocks from brokers and selling them on to other buyers when a stock is thought to be overvalued, investors essentially short the stock profits from the difference in the buying and selling price if the stock price is lowered. It is an aggressive and risky strategy, and is generally only suited to those with the bankroll to pay back brokers before fixed interest and debts start to become unmanageable. Longing a stock, on the other hand, is a much safer be which entails purchasing and keeping stock for a longer period of time.

CONTACT THE STOCK MARKET COLLEGE FOR FURTHER DETAILS

If you would like more details on how to enrol in courses that will give you a competitive edge in the stock markets, contact a representative from the Stock Market College today, or visit our website for further details on our curriculum.

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