Basics of investing that everyone needs to know
- investeenn
- Apr 25, 2023
- 2 min read
Market capitalization - Market capitalization is a representation of how large a company is. It is the total number of shares multiplied by the price of one share. When comparing how large/small companies are, it is necessary to look at market cap instead of price, as a stock may have a really low price but a large market cap.
Types of orders - There are mainly two types of orders. Market orders are orders that immediately execute a trade when the order is placed at the current price. Limit orders are orders that only execute the trade when the given stock has reached a particular price, and this price is set by the trader. All brokers have the choice of market or limit order.
Pre and post market trading - Prior to the market opening, you can place trades. However, there is lower liquidity, so if you place a limit order at let's say $200, it may execute even when the price comes to 190$. This is because in pre and post market trading, there is a very low quantity of stock that is being traded as compared to the open trading hours, and hence your limit order may execute prior to reaching the exact specified price.
Stop losses - Stop losses are essentially a risk minimization strategy that involves placing a limit order to sell a stock if its price falls below a minimum price. There are many types of stop losses such as fixed stop losses - which mean the price at which the stock will be sold is fixed - and trailing stop losses - which mean that the price at which the stock will be sold would move up if the stock price itself moves up. Stop losses are absolutely crucial when it comes to minimizing risk.
Bonds - Bonds are essentially loans that the government takes. The buyer of the bond(a normal investor here) is guarenteed a particular percentage of interest over time until the total principal is paid back. Bonds generally have higher rate of interest than that provided by the bank and minimal risk(although it still exists of course)
As interest rates rise, bonds become more attractive than stocks.
Options - Options are securities that gives the buyer the right but not the obligation to buy or sell a stock at a price(decided by you) within a particular time period. There are two types of options - put option and call option. A put option is executed if one believes that the stock price would go down and a call option is executed if one believes that the stock price would go up.
Keep investing.

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