Investing in the stock market can seem like an intimidating task, especially if you don’t know how it works. How do you even start? What are your options? What are the rules?

All of these questions and more can be answered with ease through this simple guide to the stock market. Here, we’ll cover the top 7 things you should know about investing in stocks and stock markets. Let’s get started!

1) What is stock market?

The stock market is a place where companies and governments raise money by selling stocks and bonds.

Investors buy these assets, believing that their values will increase over time. Those shares can then be sold for more than what was paid for them (generating capital gains), or those assets can be held onto for long periods of time in hopes that they’ll eventually appreciate in value.

In either case, investors are taking a risk when purchasing such assets, hoping that their investments will perform well enough to make up for whatever money they spent. How does it work?

When an investor buys a share of stock, he or she is buying part ownership in that company. For example, if you own one share of Google stock, you have part ownership in all of Google’s operations—the search engine, Gmail, YouTube and so on. As an owner/investor, your vote counts as much as anyone else’s at shareholder meetings.

You also get access to any dividends that Google decides to pay out—that’s how some investors actually profit from owning stocks.

2) Why the US Stock market matter

The US stock market is arguably the biggest and most important stock market in the world. It accounts for more than 40% of total global trade.

Not surprisingly, it’s also home to many of biggest companies and most popular brands out there—think Apple, Amazon, Google (parent company Alphabet), Facebook and Microsoft.

The other reason why it matters is that so many people look to US stocks as a bellwether for investor sentiment; if they’re soaring or plunging, it may indicate whether people are optimistic or pessimistic about growth prospects over here and abroad. And finally, because American investors are some of the largest holders of international stocks.

That means any changes in trading patterns can have significant effects on prices around the globe. And when we say significant, we mean significant! If U.S. investors become bullish on Asian markets, their demand can send those markets up by double-digit percentages overnight. How do I invest?

There are three basic ways to invest in stocks: individual stocks, mutual funds and exchange-traded funds (ETFs). Individual stocks require a bit more work but offer greater control.

Mutual funds allow you to diversify your holdings across hundreds of different companies while letting an expert pick your investments for you.

ETFs give you instant diversification across multiple sectors and typically have lower fees than mutual funds. Most experts recommend starting with index funds before moving on to individual stocks, but it all depends on your goals and risk tolerance level.

3) How stocks in stock markets are priced

A stock is priced by how much investors are willing to pay for a share of that company. If demand for a certain stock is higher than supply, then demand will drive up prices, meaning shares cost more.

But if there’s an excess of supply and low demand, then shares will be cheaper. The price-to-earnings ratio (P/E) is one way of measuring a stock’s value relative to its earnings.

It divides a company’s current share price by its earnings per share (EPS). In theory, stocks with high P/Es are riskier investments because they could face greater losses in value when compared with lower P/E stocks during periods of falling earnings or slower growth. However, some argue that companies with high P/Es can offer better long-term returns on investment.

This is because these companies may have great potential for future earnings growth. For example, Amazon currently has a P/E of around 1,000 times its EPS – but many people believe it still has plenty of room to grow as it expands into new markets and areas such as artificial intelligence and voice technology.

4) Is this a good time to invest in stocks?

Whenever there’s a bull market going on, it’s generally easier to convince someone to invest in stocks because everyone is buying.

Investors who aren’t familiar with technical analysis might jump into stocks whenever they see that shares are at an all-time high and there’s no where else to go but up, only to sell them just before they go down again.

If that doesn’t sound like a good idea, then it isn’t! But if you’re looking for a more concrete answer, here it is: No one knows when exactly will be a good time to buy stocks.

But if we look at history, we can see that stock markets tend to perform better during economic expansions than during recessions. Currently, both of these conditions apply so now could be a great time to start investing.

Just make sure not to put your entire savings into one company or industry! Diversification is key! What is technical analysis?: Technical analysts analyze historical price data to predict future trends.

This approach differs from fundamental analysts, who try to figure out how companies will perform by analyzing their balance sheets and earnings reports.

Technical analysts rely on charts rather than numbers, which means that even people without any financial background can use their methods to predict future prices—at least in theory. In practice, however, some investors swear by its effectiveness while others consider it useless mumbo jumbo.

5) Why stocks are volatile

The market may seem a little crazy sometimes, but that’s because stocks are risky—not over-the-top risky, but not risk-free either. Stocks are an investment in businesses.

When your money is invested in a company’s stock, you own a small piece of that business and your profit (or loss) will be tied to how well that company does.

For example, if it decides to open up another factory or buy more equipment or hire more employees, then more of its shares will be sold on exchanges around the world—and it’ll command a higher price. If not, its value goes down.

This volatility is one reason why some people choose not to invest in stocks at all. They say they don’t have time for ups and downs and prefer predictable returns.

That’s fine, but they’re missing out on some great opportunities as well as avoiding some big risks. But if you can stomach fluctuations, there’s no better way to grow your wealth than by investing in companies that do well by doing good .

It’s also important to remember that stocks aren’t just volatile during downturns—they can rise dramatically too! This means investors who’ve held onto their shares for decades have seen their fortunes skyrocket many times over…even after factoring inflation into their gains!

6) Things To Do Now That You Own Stocks

Once you’ve actually purchased some stocks, there are a few steps to take to protect your investment and make sure it grows.

Whether or not you hire a professional to handle things for you, it’s important that you understand all of these moves. Investing is a tricky game; understanding exactly what’s going on inside your portfolio can help keep your investment safe and sound for years to come.

3 Things You Should Do Right Now After Buying Stocks:

1) Decide how much you’re willing to lose: No matter how great an investment may seem, we always have to remember that we could lose money if our predictions don’t turn out as planned.

In order to set yourself up for success with your stock investments, decide ahead of time how much money you are willing to lose in case things don’t go as planned. This way, you won’t be tempted to bail when times get tough—and will instead be able to ride out any storm until conditions improve.

2) Set aside extra cash for taxes: As with any investment, investing in stocks will likely lead to capital gains taxes at some point down the road.

While capital gains tax rates vary depending on your income level and whether or not you hold onto your stocks long-term (more than one year), they can add up quickly over time.

It’s best to prepare by setting aside extra cash now so that you aren’t surprised by tax bills later on down the line. And, if you think you might sell before one year has passed, consider using a tax-advantaged account like an IRA or 401(k).

These accounts let you avoid paying taxes on your earnings immediately but also give you flexibility to withdraw funds whenever necessary.

Remember that withdrawing from retirement accounts early usually means paying stiff penalties—so think twice before doing so!

3) Get educated: Most people jump into stock market investing without really knowing what they’re doing.

That’s fine for small amounts of money invested here and there but probably isn’t wise for large sums of money being put into high risk situations where fortunes can be made or lost overnight.

So educate yourself before making big decisions about your portfolio.