Here Are Four Fundamentals of the Stock Market You Need to Understand

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Here Are Four Fundamentals of the Stock Market You Need to Understand

The stock market can seem like a daunting and overwhelming place for any individual who isn’t already familiar with the wheelings and dealings that go into trading stock. If you are just getting started in trading, you may have some challenges in keeping up with all of the jargon and lingo that goes into standard stock market discussions. It is important to remember that everyone starts somewhere, and if you are just getting started in the stock market, you need to give yourself plenty of time to learn the ins and outs of trading. However, before you get started there are a few fundamentals about the stock market that you need to know. This will give you a strong foundation moving forward so you can really start to learn about the market, how to trade and how to be successful with all of your investment ventures.

  1. Bull Market vs. Bear Market

The terms “bull” and “bear” are perhaps the two most popular words used when discussing the stock market. Understanding what these two terms mean will get you in the door and have you understanding the basics of different market trends. First, There is bull market– this is a term used to scribe when there is a 20% or higher rise in stock market indexes from a low. This is a term typically used to signify that the US economy is growing. The term is used because bull strike up with their horns.

A bear market on the other hand, is a downtrend of 20% from recent high market indexes. This could be a sign of a potential recession. The term is used because bears swipe down with their paws when attacking.

  1. Growth Stock vs. Value Stock

Much like bull and bear markets, the terms growth stock and value stock typically go hand in hand in the stock market world. A growth stock is typically more volatile and is often tied to how the US economy is performing. Typically you will find growth stocks in the tech industry. These stocks have great rewards when they are successful, hence the name, but they also come with a great deal of risk.

Value stocks on the other hand are not as risky. You won’t have the same type of huge growth prospects with these stocks, but you can typically rely on steady growth over a longer period of time.  Value stocks can also be beaten down stocks that have fallen with the overall market and now are undervalued.

  1. Inflation and Deflation

If you don’t already know about inflation and deflation, you need to learn before you start trading. These terms are often used when describing the market, because they impact what consumers see on the price of goods and services that they buy. Inflation means the rising price of goods and services. On the other hand, deflation describes a situation where prices fall. Typically, over times, things inflate in value, unless the economy is in a recession and they deflate in value.

  1. Short-Selling

There are so many people who start trading for the first time and immediately start asking about short-selling or short sales. This has become a hot “buzzword” in the market lately. Short-selling is not the typically approach to buying stocks. It allows you to bet against the stock in a way that if the price goes down you will make money on your investment, but if it goes up, you will lose money.

It is important to remember that a short-sale only allows for a maximum profit of 100% of the stock and has unlimited loss potential, unlike traditional stock investments, where your losses are limited to 100% of the stock’s cost, but your profit potential is unlimited.

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