What is the Stock Market and How to Invest in It?

The stock market is a huge global entity, and one that can be hard to quantify in terms of value.

To provide some context, the New York Stock Exchange (NYSE) is the largest entity of its type anywhere in the world, boasting an equity market cap value of just over $28.2 trillion as of October of this year.

But what exactly is the stock market, and how can you invest in it as an aspiring trader? Let’s find out!

What is the Stock Market and How Does it Work?

In broad terms, the global stock market features a number of marketplaces and entities in which financial instruments are traded.

While the dominant assets in play here are stocks, you’ll also find commodities and fixed-income products like bonds traded commonly through exchanges like the NYSE.

There are various stock market exchanges across the globe, including those located in London, Tokyo and Sydney. Together, these entities also shape and direct the 24-hour forex market, which is now more accessible than ever through online trading platforms such as metatrader 4.

All activities and participants in the market (including both retail and institutional investors) are regulated by the Financial Conduct Authority (FCA) in the UK, as are the individual exchanges that enable financial instruments to be traded in real-time.

You can also target and invest in stock market indices through such platforms, with these entities describing a basket of stocks that represent a specific theme, size, industry or even country (in the wake of the DAX30).

Stock market indexes can also be used to provide a common gauge on the trend and movements in the stock market, so this can be interesting either as a direct asset class or an informative metric.

The Key Considerations and How to Get Started

When starting out as a stock market trader, the single most important thing is to set your capital limit and the amount that you’re prepared to risk on each trade.

This will vary depending on your risk outlook, but most traders don’t commit more than 2% of their total capital to a single order. It’s also important to ensure that your total capital holdings don’t equate to more than you can afford to lose, or you can soon find yourself in the midst of a financial crisis.

From here, it’s important to build knowledge of the stock market and then bridge the gap between theoretical learning and practical market experience.

The way to achieve this is to utilise the demo account feature on your chosen trading account, with this available for between three to six months and enabling you to trade in a real-time, simulated market environment.

This will help you to develop, hone and streamline your strategies, hopefully resulting in improved returns over time.