Home / Business / Importance of Market insight for trading
Importance of Market insight for trading 1

Importance of Market insight for trading

The stock exchange is an excellent place if you’re looking for long term investment, but if you go in there without any research, you’re taking a huge gamble. When you want to buy something important like a house or a car, you do not just go in there and pick at random which you like the best. You do some research and search for the manufacturer if it has certain features, the quality of it and it’s the price. After that, you decide if it is best for you or not. Stock market research is the same, and if you want some help regarding this, ETFs can help you out.

Stock market research is important when deciding where your investment needs to be made so that you can reap the benefits afterwards. 

How to do stock market research and what factors do you need to keep in mind? We will discuss that below. But first, let’s explain what a stock market is.

What is the stock market?

A stock market, also known as the stock exchange, is a place where the shares can be purchased, sold or traded. If you own shares or stocks, that means you are part of a public company. 

Now each stock has a price which can go up or down depending on the corporation’s performance, the economy of the country or the people’s perception about it. The company more often than not, at the end of each year give shareholders dividends which give more meaning to the stock price. When the seller thinks that the performance of the company is good, they increase the share price so that they can sell it and earn the profit. While the buyer will try to lower the price down as much as he can so that he can earn a profit when he sells it.  

Why do companies want people to be owners of their business? That’s because they want to expand their business and grow, for that they need capital. So by selling stock, they raise the funds they need so that they can invest in their business.

Researching the Market 

So you have decided that you want to invest in the stock market. Now you have decided which companies stock are the best suited to put my money into so that when I sell, I can get a good profit. This is where market research and analysis can play a huge role. These are things one should look for while researching the company whose stocks they want to buy:

The company

Learn about the company in which you have decided to invest your money. You want to know what product or service they are selling. Browse them on the internet, follow them on social media platforms to learn about their business and how long they have been in business.

Reading financial reports 

Read their annual financial reports because they can give you an idea about how they have been performing generally in the past 10 to 15 years. Are they in profit or going in losses? How much money do they have in reserves? What are their expenses, and where are they investing? These questions and more can be answered by reading the annual financial reports. There is a lot of information in financial reports, so we will narrow it down and take a look at figures that matter:

    1. Gross profit is calculated by subtracting the costs from revenue. This gives the profitability of the company, and by looking at the previous year’s profit, one can get the idea of whether the company is growing or shrinking.
    2. The price per earning ratio tells us whether the share is expensive as compared to its competitors. It is the price of one share divided by the profit per share. By comparing the ratios of several companies in the industry, you can figure out if the share is expensive or not. If your company has a price per earning of 15 and that of its rival is 10, your company is considered as expensive.
    3. Return on equity is calculated by dividing the profits by shareholder equity. This tells us how much the company is earning through its shareholder money. Higher return on equity attracts investors. It is used when comparing stocks of the company from previous years or when comparing it with its competitors.

Know the management 

The companies management has a significant impact on share prices. Learn about the chief executive officer(CEO) and directors of the company. How much experience they have and their previous roles and successes. The reputation also plays a major role in the stock prices, especially that of the CEO. Company stock prices fluctuate when there is a change in the hierarchy of the company. Also, Look at the employment situation in the company because a company has a management issue if it’s bad.

Expert Advise 

Listen to the experts. Experts give their analysis and opinion, which can help you in reaching a decision, whether it is a good idea to invest in a particular stock. Listen to podcasts, read columns or articles. Don’t just listen to one expert and decide. Read and listen to as many as you can, and if many say the same thing, then you can have a better understanding of the market.

Technology

With the fast-paced world, we are in living in everything is becoming advanced and being replaced. So look into the company and its products whether they are moving with the times and innovating because they might come up with something which might revolutionize the industry. Or they are standing still, or the industry is going down, for example, the paper industry went down because everything is electronic now. So it’s important to catch up on the latest happenings in the industry where you are investing or planning to invest.

Conclusion

Once you have decided to invest in stocks, it is important to put in the necessary hard work required and do as much as you can ensure that the place where your money is going is a safe investment and you will not regret the decision. Otherwise, all your hard-earned money will go down the drain, and you don’t want that.

Thus by researching and analyzing, you will have an idea on how the stock markets around the world function. It will provide with the necessary knowledge that goes into buying shares. By following the suggestions above, you are in the right direction to earn a good income in the stock market and who knows you can Maybe become the next Warren Buffet.

About Derek Preston

Check Also

Pack for All Trade Shows

Top 6 Qualities That Make the Best Trade Show Exhibit Company

Expomarketing is an excellent way of connecting with your target market, and it applies whether …

Leave a Reply