How to invest money in stock market

How Investment Works

Any time you are going to be putting your money into a fund; it is a good idea to start by understanding what you are buying into. The stock market is a complicated entity, and doing minimal business in trading requires a fair amount of basic knowledge, as well as the understanding and acceptance of the high risk factor. The more you know in advance regarding the functionality of the system, the less likely it is that you will take a heavy hit, ending in devastating loss.

First of all and probably most important in the trading business, you should understand what stocks actually are. When you buy or sell a stock on the open market, you should keep in mind that you are dealing with real objects, not pieces of paper; you are buying and selling real parts of a particular company, its product, or some other various commodity.

Owning a” “sharemeans that you have actually bought into and become a partial owner of that commodity. Of course, you could be one of millions of

shareholders, as most companies and products are broken into minute pieces of the whole, but you are still considered an investor in that company or product until you sell your shares.

Think of it as paying for a tank of gas in the car that your parents bought for you to drive. You may have even bought the oil filter that has been put on the car, and you may feel that this investment makes you part owner. However, when you look at the overall cost of the car, you have really contributed very little to that amount. However, as long as you continue to invest in the gas for the car and take care of the maintenance needs, you can claim part ownership of the car.

Because the value of a company and its products or services can fluctuate continuously, the value of the stocks you hold will not be the same from day to day and can sometimes even change hourly. When the price per share drops and is considered low, it is an ideal time to purchase. This is the least expensive way to begin your trading venture, and working with a stock broker will allow you to gain more information as to what stocks are ripe for the purchase at any given time.

In doing so, you become a stockholder, and the value of your holdings will fluctuate from day to day. Your gamble (and hope!) is that the value of the company or product in which you have invested will increase or rebound from the low price at which you made your purchase. This is the goal of all traders and means that your stock will become more valuable.

As the value of your securities increases, so does your net worth. When the price of the stock in your possession reaches a high point, it is time to sell, making a profit on your original investment. Ideally, you will always sell your holdings for a reasonably higher price than the purchase amount and should never sell when the current value of the stock is below your initial purchase price. It is important to make sure that you do not purposely take a net loss because there are plenty of occasions when you could be forced to take a loss.

For example, if you purchase shares of a company at twenty dollars each, you should never sell them for eighteen dollars apiece. If possible, you want to hold off until they are each worth


perhaps forty dollars, in essence doubling your money. Of course, this is just an example, and not all stocks will ever double in value, but the illustration is meaningful.

There are other, more complex ways to invest in the stock market. However, much like learning to ride a bicycle, you do not want to make your first attempt without training wheels.

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introduction to stock market | stock market tutorial

Plain and simple, a “stock” is a share in the ownership of a company.
A stock represents a claim on the company's assets and earnings. As you acquire more stocks, your ownership stake in the company becomes greater.
Some times different words like shares, equity, stocks etc. are used. All these words mean the same thing.
Holding a company's stock means that you are one of the many owners (shareholders) of a company and, as such, you have a claim to everything the company owns.

This means that technically you own a tiny little piece of all the furniture, every trademark, and every contract of the company. As an owner, you are entitled to your share of the company's earnings as well.

These earnings will be given to you. These earnings are called “dividends” and are given to the shareholders from time to time. 

A stock is represented by a "stock certificate". This is a piece of paper that is proof of your ownership. However, now-a-days you could also have a “demat” account. This means that there will be no “stock certificates”. Everything will be done though the computer electronically. Selling and buying stocks can be done just by a few clicks.    

Being a shareholder of a public company does not mean you have a say in the day-to-day running of the business. Instead, “one vote per share” to elect the board of directors of the company at annual meetings is all you can do. For instance, being a Microsoft shareholder doesn't mean you can call up Bill Gates and tell him how you think the company should be run.

The management of the company is supposed to increase the value of the firm for shareholders. If this doesn't happen, the shareholders can vote to have the management removed. In reality, individual investors like you and I don't own enough shares to have a material influence on the company. It's really the big boys like large institutional investors and billionaire entrepreneurs who make the decisions.

For ordinary shareholders, not being able to manage the company isn't such a big deal. After all, the idea is that you don't want to have to work to make money, right? The importance of being a shareholder is that you are entitled to a portion of the company’s profits and have a claim on assets.

Profits are sometimes paid out in the form of dividends as mentioned earlier. The more shares you own, the larger the portion of the profits you get. Your claim on assets is only relevant if a company goes bankrupt. In case of liquidation, you'll receive what's left after all the creditors have been paid.

Another extremely important feature of stock is "limited liability", which means that, as an owner of a stock, you are "not personally liable" if the company is not able to pay its debts.

In other legal structures such as partnerships, if the partnership firm goes bankrupt the creditors can come after the partners “personally” and sell off their house, car, furniture, etc. To understand all this in more detail you could read our “How to incorporate?” article.

Owning stock means that, no matter what happens to the company, the maximum value you can lose is the value of your stocks. Even if a company of which you are a shareholder goes bankrupt, you can never lose your personal assets.


In any business or moneymaking venture, preparation and foreknowledge are the keys to success. Without this sort of insight, the attempt to make a profitable financial decision can only end in disaster and failure, regardless of your level of motivation and determination or the amount of money you plan to invest.

In the stock market, this rule applies to the nth degree, as you are investing your own money in what could be considered a high risk wager, and you are playing with fire if you do not have at least a general background knowledge of how it functions. Since having a background in any area is helpful in guiding you down a path in that particular region, the more solid your basis of investment knowledge is, the more likely you are to profit from any attempt to trade on the open market.

In many ways, trading on the stock market can be compared to driving –you do not have to be an expert to get behind the wheel of a car, though you are expected to have some previous knowledge about basic traffic laws, including moving violations, safety regulations, and other legal vehicular infractions, which are learned through either specific study and coursework or even through some form of simple exposure (such as the years you have spent riding with your parents and others who have driven for years). You should be able to comprehend the basic tools used to navigate a car (where the break pedal is located versus the gas, and how to use the rearview mirror, for example), even if you have never touched a steering wheel.

The same is true in entering the world of the stock market. While you do not have to know all the terminology (you will not be short selling or determining your own long and short positions at first, so you do not have to understand these references completely, though you should be aware of them), you should certainly be versed in the basic functionality of trading stocks, bonds, securities, and other commodities. And just like someone who is behind the wheel of a car and getting ready to touch the gas pedal for the first time, you should start out with caution and work your way in slowly. A first time driver will first set the mirrors to his or her own liking, then put the car in gear, look for any interfering traffic, and ease onto the gas pedal, never flooring it and testing the engine coming out of the gate on the first attempt. Likewise, when you select your first investment, you should choose something stable with little fluctuation and not invest a large sum of money on this first venture.

your knowledge of the commodities in which you ar toward better stock market buying and selling decisions.

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