Understanding The Math Before Investing In Stocks

People have been flocking to different investments over the past few years, and for good reason. The economy isn’t exactly stable and those without investment seriously jeopardize their financial future. And it’s becoming clearer every day that investing your money is why you’ll never have to worry about finances in the future. While there are plenty of investment options out there, stocks seem to be the most popular. Maybe it’s because of the high risk and high reward factors playing in stock investment, or maybe because it doesn’t necessarily need a large capital. Whatever it may be, people are putting their money in stocks. But you need to understand the math of it all before investing your money in such a market.

Understanding The Math Before Investing In Stocks

Interest rates

Interest is basically the rate at which people, governments, and banks lend and borrow money. It’s how the value of the money will increase over time, according to the percentage of the interest rate. You might ask yourself, how does this affect the stock market and why do you need to understand it? The answer lies in the fact that when interest rates in a country fall, for example, people and businesses start spending more money and purchasing increases more than usual. When this happens, stock prices increase, and the bond prices are affected as well. The same happens when interest rates skyrocket. Spending decreases, stock values decrease, and so on. So, interest rates and the math behind them do affect the stock market significantly.

Penny stocks

Not all stocks out there are those of Apple and Microsoft. There are significantly smaller stocks that demand your attention and understanding. Any stock traded under a value of one dollar is called a penny stock, which is used by small companies whose shares are under $5 each. You can read more about penny stocks to understand why they might be a not so bad investment option. While they are small in value, they can still have significant profits in the long run, if you know where and how to invest.

Foreign exchange

Whether you’re a stock or a forex broker, you should have a solid understanding of both markets and the math behind each. Why? Foreign exchange and stock prices have always been associated, and that won’t change soon most likely. When the stock market is doing well and stock prices rise, investors feel confident enough that the country is stable and the conditions are suitable for investment. This brings in foreign investors who start putting money in the country, and as a result the value and demand for foreign currency change. The opposite happens when the stock market isn’t doing so well, so investor doesn’t invest and demand for foreign currency decreases.

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The stock market is vast and gaining in-depth knowledge into such a complicated field requires time and effort. You need to learn all you can about how stocks work and the math behind them, because at the end of the day you will realize that this knowledge will help you become better at the game, and as a result make more money.

–EOF (The Ultimate Computing & Technology Blog) —