Finance

WHAT IS STOCK MARKET AND HOW TO SURVIVE MARKET CRASH

What is Stock Market

A stock market, also known as an equities market, is a marketplace where investors can buy and sell shares in publicly traded companies. Publicly traded shares may be bought and sold on centralised exchanges or over-the-counter (OTC) markets.

The stock market is essentially a free economy market in which companies can raise capital by offering part ownership to interested investors.

For investors, the stock market provides a once-in-a-lifetime opportunity to be a part of an established or already running a business and reap any of its resulting rewards without the high risk of investing in a new, unproven business that must contend with start-up costs, overheads, and other running costs and management.

Reason for entering into the stock market by corporate

The stock market provides a convenient source of capital for underlying companies to fund their growth or expansion activities. This results in a win-win scenario for both parties.

However, there are risks associated with any investment operation. The price of the stock a trader holds determines the amount of risk he or she takes. The loss occurred when the stock price is sold below than purchased price and profit occurred when the stock price is sold at the purchased price.

The stock market serves three important functions for investors and brokers. Brokers act as your go-betweens when trading on the stock exchange. Here are the three critical functions that Indian stock exchanges actually perform.

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Share markets connect buyers and sellers. When a buyer and a seller place orders on the stock exchange, the stock exchange gives the best execution to both.

Buyers pay the lowest available price for execution, while sellers pay the highest available price.

One of the most important functions of stock exchanges is the clearing of trades. To clear transactions, stock exchanges have their own clearing corporations, who work with brokers to ensure that credits, debits, and deliveries are managed properly.

Risk is managed by stock exchanges. Margin requirements are imposed on traders to ensure that no unnecessary risk is taken in the markets. More importantly, the trades are guaranteed by stock exchanges (via their clearing corporations). The stock exchanges serve as the counterparty in every transaction. As a result, there is no counterparty risk when dealing in stock markets.

The stock market allows companies to raise capital by issuing corporate bonds, and stock market trading makes stock shares available for purchase by the general public. If an investor chooses to purchase a stake in a company, they will benefit from the dividends that the share assigns when paid out or sold at a profit, as well as share in the company’s financial success.

Nowadays stocks are trading  in electronic form not in physical form .

SHORT SELLING, BULLS AND BEARS MARKET

The terms “bull” and “bear” markets are fundamental concepts in stock market trading. The term “bull market” refers to a stock market in which stock prices are generally rising. This is the type of market in which most investors thrive, as the vast majority of stock investors are buyers rather than short-sellers. A bear market exists when stock prices are falling overall.

Click here to know about what type of knowledge of stocks is required before entering in stock market 

Short selling allows investors to profit even in bear markets. Short selling is the practice of borrowing stock from a brokerage firm that owns shares of the stock that the investor does not own. The investor then sells the borrowed stock shares in the secondary market and receives the proceeds from the sale.

If the stock price falls as expected, the investor can profit by purchasing a sufficient number of shares to return to the broker the number of shares borrowed at a total price less than what they received for selling shares of the stock earlier at a higher price.

VALUE INVESTING VS GROWTH INVESTING

 

Analysts and investors use a plethora of stock picking strategies

Value investors typically invest in well-established companies that have demonstrated consistent profitability over time and may provide regular dividend income. Value investing is more concerned with avoiding risk than growth investing.

Growth investors seek out companies with exceptionally high growth potential in the hopes of maximizing share price appreciation. They are typically less concerned with dividend income and are more willing to take risks by investing in young companies. Growth investors frequently favor technology stocks due to their high growth potential.

Click here to know about stocks when planning to enter into stock market 

HOW TO SURVIVE MARKET CRASH

If you’ve been following the stock market for a while, you’ve probably seen or read such headlines on television or in newspapers. Every investor’s worst nightmare is a stock market crash. A market crash can catch us off guard, especially when everything appears to be in order and we least expect things to go wrong.

It is the unpredictability of a stock market crash that keeps us on edge, waking up at night, wondering when it will happen.

HOW TO SURVIVE MARKET CRASH

The stock market crash not only destroys the majority of your wealth, but it also leaves you with countless sleepless nights.

So you’ve invested your hard-earned money, and now the market is tanking, wiping out everything you’ve worked for over the years.

We understand how difficult it is to remain calm in such circumstances. But what should you do now?

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Here are some things to remember if you want to survive a market crash.

  • The first tip for surviving a stock market crash is to control your fears.

Investing necessitates more rational thought rather than emotional reaction to the situation. An investor should always try to keep his emotions out of his investment decisions.

What appears to be a disaster today may appear to be a minor blip on the screen in the future.

  • Keep your mind is in patience level if you want to survive in stock market when crashed

Investing in the stock market is not a hack or a trick that you can learn and use to make a lot of money quickly. It necessitates a great deal of self-control and patience.

You must be willing to accept that volatility, ups and downs, and market crashes are all part of the market, and if you are not, you will be unable to trade.

Disciplined investing and long-term vision are the most effective ways to weather short-term storms.

  • First short and then followed the trend it is very risky but doing with proper hedging strategies is sometimes profitable. During a market crash, shorting stocks can provide significant profits. Aside from new short selling, investors can use option derivatives to hedge their portfolios.

 

Limit your selling to items that are overpriced.

Hold onto those with reasonable or bargain valuations; they may justify the additional investment when the market regains its sanity. Market declines of this magnitude are not uncommon. They are, in fact, unavoidable. When the market suddenly stops working for you, it’s critical to trust your research and keep your long-term goals in mind. You’ll be able to reach dry land this way.

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