Stock markets are amongst the most heavily traded of all financial markets, given the returns that can be generated from getting involved in investing in companies. Stock market trading might be challenging in practice, but it does deliver a number of benefits over alternative means of investing capital, and traders that learn how to turn the markets to their advantage can profit time and time again through identifying the right markets and securities for speculation.
There are a number of alternative bases of investment in financial markets, and traders with scarce capital resources need to decide which markets represent the most effective deployment of capital. As a result, it’s valuable to weigh up the advantages of stock trading over other forms of capital investment in order to determine whether it is the right approach for growing your trading capital.
Profit From Company Performance
Stock markets provide a means through which traders can speculate on company performance. Companies are a particularly good basis for investment because they have the capacity to fuel their own growth, and deliver significant returns beyond the growth of pretty much any other asset. Furthermore, different companies can be more or less effective at generating growth, and traders have access to this type of information in making their investment decisions. As a result, stock market trading allows investors to have a much greater degree of control over their capital and how it is managed, and so it’s often a preferred medium of investing as compared to less dynamic products without the same capacity for returns.
Capital Growth
In stock market trading, traders have the advantage of aligned goals with the underlying company in which they are trading. In long positions, both the directors and the shareholders want the company to do well, and so personnel and resources are devoted to driving growth in performance. This is a powerful factor for investors to consider and, unlike other markets, shares and equities are unique in that they have influence over their own performance. The capacity for capital growth in stock markets means that traders can beat any level of return available on the high street, and grow their investment by a much more significant degree.
Ongoing Revenue Stream
In addition to the potential for capital growth, shares can also deliver an ongoing revenue stream in the form of dividends. Dividends are effectively a share of company profits that all shareholders are entitled to receive, by virtue of their stake of ownership in the company. Dividends are paid out often at several intervals annually, and are naturally more significant in companies that are performing more effectively. The dividend belongs to the bearer of the share, no matter how long it has been owned for, thus serve as a real incentive for traders to get involved in the markets and to structure their portfolio. As a result of dividends, traders can deliver ongoing returns and capital growth in tandem, to aggregate the trading benefits of trading in shares.
Convenience of Trading
Trading on stock markets is not only a beneficial way to manage capital, but a functionally easy investment source to get access to. The generation of remote traders operating online and on mobile platforms means it’s easier and more convenient than ever before to start trading on stock markets. With preliminary research, a demo account and a finalised broker choice, it can be possible to take exposure to the share markets without too much complexity, although success requires the ongoing commitment to research and hard work.
Keep An Eye On Market News
Share prices are determined by the offset between buyers and sellers, and represent a true (if not merited) market price for the equities in question. When buyers buy, prices rise in response to the demand pressures on stock. When sellers sell, the reverse happens, and market prices slide away, and the capital investments of many traders and savers with it. When it comes to determining what triggers these behaviours, understanding market mentality becomes obviously critical, and ignorance can cause significant damage to both self-confidence and capital. As a result, shrewd traders keep a close eye on market news, in order to get a better feel for market sentiment and to more ably predict how markets will move in response.
Market news can sure up potential investments, or cause panic about investors getting their expected return. If a market sees good news, there is a more than fair chance share prices will rise, and where the news is negative, share prices will probably slide. It’s important to know the news therefore, and to be up to date with current events, in order to make more logical trading decisions that prevent loss and generate a profit.
The Relevance Of Stock Market News
News and current affairs shape the way traders and investors think about the future. Whenever capital is invested in shares, it is done so on the anticipation of capital growth over time, and possibly regular dividend payments too. Anything that jeopardises these potential objectives, including the possibility of other shareholders panicking, will drive the large investment institutions to sell off and shift the price of the relevant stock heavily downwards. In large part, investment institutions and other cautiously minded trading funds shape the markets, because of their sheer trading volume in comparison to individual traders. This has the impact of making markets highly responsive to news good and bad, which makes it essential research for anyone looking to generate a serious capital return.
What News Matters?
The whole global economy is interrelated, so there’s a world of news to choose from that may be relevant to any given market or stock price. Civil war in Africa might disrupt natural gas supply for example, which could filter through as a negative factor for gas supply companies in Europe. There can be no shortcut to understanding what news matters specifically to your markets – only through getting to know the market and researching the factors, issues and interplays with other markets can you begin to get a feel for the types of news that might have an effect.
Aside from merely following the news, it’s also important to interpret it and the likely impact it will have on the mindset of investors in your market. As you become more experienced, interpretation of news data, in conjunction with technical analysis, will become a much more natural process. In the interim, it’s important to hit the ground running with a constant view to what’s going on in the world and around the markets and economies in which you invest.