The Democratization of Finance and Financial Markets
The financial market and the investors who partake in their activity have long eluded the understanding of the general public. From the Roaring 20s to the 2008 financial crisis, financial markets and their machinations have seemed more-or-less like another world to onlookers; one full of graphs, charts, and numbers everywhere. Needless to say, this had become quite daunting to those who wished to enter the market themselves.
Thanks to modern technological advancements, however, financial markets and their workings have now become open to nearly anyone with a device to access them. This “Democratization of Finance” as it has been called, has heralded an unprecedented surge in financial market activity and novice investors eager to understand the market.
This article seeks to do just that, to explain some of the basic tips and pieces of info that are crucial to the fundamental knowledge of any investor; from leverage trading to stock analyst price targets.
5 Bits of Info for Every Investor
From here on, we’ll be delving into each of the pieces of information that should be a part of every investor’s arsenal, starting with…
Choosing a Broker
There is no better starting point in this topic than with the choice of your broker. Your broker will be the platform by which you interact with the stock market, facilitating and executing your investments and trades. As such, the choice of broker that you settle on can have massive implications.
The broker that you choose to interact with the market through will determine the rules and regulations by which your investments will follow. For example, some brokers allow for investors to lock in positions without any need for a prior commission payment (known as commission-free investing). Still, others may offer perks, such as day trading for new accounts or even sign-up bonuses in the form of shares of a certain stock.
Investing Is Not the Same Thing as Trading
Next, we’ll touch on a commonly overlooked aspect of the markets; the difference between investing and trading. Fundamentally, both activities are essentially the same; in both, the acting party pours resources into an asset with the hope that the asset in question will produce a positive return on the resources poured into it. The difference is in intent and timing.
Traders are short-term market actors, entering and exiting out of trades at lightning pace throughout the day. The goal of the trader is to get in, make a profit, and get out quickly, or at least within a short time span. Investors, in contrast to this, are far more long-term focused and cautious; they might lock in trades that may sit in their portfolio for years before being touched. The goal of the investor is to find a promising asset that can be trusted to produce returns on the investment over long periods of time.
Stock Market Analyst Price Targets
The next topic is that of stock market analysts and their price targets. Analyst price targets are a staple of the markets, and regardless of whether they hold true or not, they move the market. A price prediction is essentially what an institutional analyst has decided that a companies stock is worth.
Analysts come to this conclusion through data research and fundamental analysis, and then make an educated prediction as to where the stock will end up in the near term.
Margin and Leverage
For those with a high-risk appetite out there, the margin may seem attractive. Trading on margin is essentially the borrowing of funds from an institution for the purpose of placing a trade. Margin magnifies results in the market, exponentially increasing any gains and losses accrued by the investor.
Be careful though, if one finds themselves on the short end of the stick you could get margin called.
The last subject we’ll discuss is volatility. Volatility is the rate of movement for a specific asset, particularly stocks when referring to the market. Essentially, volatility is the rate at which a stock moves up and down. Any form of activity, in any direction, will increase volatility.
Volatility is a wild card, as it can work for you in a down market and against you in a bull one.