Background 

Thank you for your support and following on my earlier stock analysis articles, with holistic view to combine Fundamental Analysis (identifying WHAT) & iVolume Spread Analysis using iVSAChart (identifying WHEN).

Many of you have given feedback and suggestions for me to write more articles in i3investor to help the public and mass market retail traders/investors (especially newbies) to become better traders/investors. It has been encouraging to have your support and hence, I will be writing a series of educational articles to be published over the next few weeks/months.

• Series A: Understand The Basic

• Series B: Preparation Before Trading or Investing (what professionals worldwide are practicing)

• Series C: A Winning Strategy

• Series D: Daily Guide for Traders & Investors

Do look out for them!

Here is the 1st of the articles under Series A: Understand The Basic.

Introduction

Have you ever dream of having your own company, whereby you can occasionally, or does not even show up at work, having top talents in the market helping you run it while you sit back and relax, watch your company grow quarterly and receives dividend payment every year? This may sound like a far fetch dream, but it is actually closer to reality than you might think!

The reality equivalent to the above dream is to own one of the most popular financial instruments referred to as Stocks. Although the topic about stocks is commonly heard from everyone in everywhere, from the young to the elderly, from the wet market to the office, however, most people do not fully understand how stock works. Stocks are often perceived as a get rich quick solution and people often purchase it without knowledge of the underlying risk and consequences.

Chances are, we often come across conversation such as Ah Beng made 10K overnight by buying stock of ABC Company and now he has another tip whereby stock of XYZ company will rocket up in a few days. Conversely, many people also perceived stocks as dangerous and you would have heard discussions such as stocks can cause you to lose everything overnight, don’t gamble your money with it. These conversations often mislead many people into thinking that stock is an easy way to get rich or stocks are dangerous and no different from betting in the casinos.

The only way to be clear these doubts is through proper education like those provided by Bursa Malaysia Public Education to create a clear understanding of what is stock market before putting your money into it.

No doubt, proper education is the key to protect yourself in the stock market through making sound decisions with the support of proper analytical knowledge and mitigating risk by taking position in stocks with lower risk but potentially high gain.

What Are Stocks?

In simple terms, stock, share & equity all means the same thing, it is a share in ownership of public listed company. The more stocks you have, the more is your share in the company’s asset and earnings.

However, being a shareholder of a public listed company does not mean that you have a say for the company’s day to day business operations or participate in decision making. Chances are public ordinary investors like you and me does not own enough share to be able to make an influence - one vote per share to elect the board of directors at annual general meetings is the extent to which we have a say in the company.

Owning a share of the company means that you are entitled to the company’s annual profit sharing which is called Dividend. A public listed company will set aside portion of its net profit and distribute it to share holders based on the amount of shares each share holder holds. However, one must also know there is no guarantee that companies will distribute dividends regardless of whether they are in a profit or in a loss.

How Stocks Trade?

Stocks are traded on exchanges, whereby buyers and sellers meet and decide on a price to transact.

Purpose of a stock exchange is to facilitate the exchange of shares between buyers and sellers, allowing buyer and seller who have the same desired price to buy and sell to meet and complete the transaction. Without a stock market, there will be no common place for buyers and sellers to meet and the transaction will be difficult to close.

Stock exchange can be physical where by transactions are carried out on the trading floor with people meeting face to face, but in the modern world now most transaction of stocks is virtual, making stock exchange consist of only a network of super computers.

Example of freely trades stock exchanges are Bursa Malaysia, Singapore Stock Exchange, Hong Kong Stock Exchange and New York Stock Exchange.

Why do Stock Price Changes?

Stock price changes every day as a result of supply and demand forces. It is similar to economics 101 whereby when more people want to buy a stock (demand) than sell (supply), the stock price moves up. Conversely, if more people want to sell than buy (supply is more than demand), the stock price would fall.

Understanding supply and demand causes stock price to fluctuate is the easy part, what is difficult to comprehend is what makes people prefer a particular stock and dislike another stock.

There are many theories and strategies to determine and decide which particular stocks to invest in, it all depends on individual’s knowledge, risk appetite and preferences.

The best law that stock investors/traders alike should subscribe to is the “Law of Supply versus Demand” in the market. When there is more demand than supply, prices will rise and vice versa.

Watch out for next article in this series of education articles brought to you by iVolume Spread Analysis (iVSA): “Article 2: Introduction to Fundamental Analysis and Technical Analysis”.

Interested to learn more?

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This article only serves as reference information and does not constitute a buy or sell call. Conduct your own research and assessment before deciding to buy or sell any stock. If you decide to buy or sell any stock, you are responsible for your own decision and associated risks.