The phenomena such as a sudden decline in stock market prices, depressed business conditions and a financial breakdown are part of the financial market. These conditions affect everyone who is closely linked with the stock market. Such phrases provide an ideal environment for various myths to develop. Myths are held beliefs that are false in reality. In the stock trading context, it indicates certain misconceptions running in the market, which provoke a novice trader to react in a way that is to the detriment to its interest.
Gambling and investing are two different terms, but they usually appear similar to most traders. The foundation of investing is based on basic facts that are backed by data and research. Investing is all about taking ownership of stock which in turn indicates taking ownership in a business. In case the firm makes a profit, then the investor receives shares in its profit as a result of the reward. Since the financial market is uncertain, the stock prices shift up and down. It leads to gains and losses.
The performance of the organisation in the varying market situation and its fundamentals are the index to the stock’s resilience. The true value is reflected through the price of shares in the long run.
Investing takes all these factors into account and stands in clear contrast to gambling. Gambling is a zero-sum game where one trader gains and another loss. Thus, gambling is all about unproductivity and investing; on the other hand, is about growth.
Common stock trading myths
Here is the well-researched list of the top 10 most common stock trading myths. Read these points to avoid falling into such fake facts.
1) Stock investing is similar to gambling
It is one of the most common myths among traders in stock trading. It is so popular that this stock market myth has converted into one of the theories in some places. The difference between these two is similar to the difference between teetotaler and drunkard. Let’s draw a clear comparison between both these terms. But before that, look at some similarities between the two. First of all, both deal with the element of chance and capital. Second, the risk factor is associated with both stock trading and gambling. Third factors, both have the uncertainty of losing and winning and losing. By considering these similarities, many people reach the conclusion that both gambling and stock investing are similar.
Now consider these differences before you build a similar viewpoint. Investing without giving a thought is the same as through a dice but when it comes to well planned successful trading it can never be a game of chances. The idea of investing is based on reward and risk. Gambling does not permit any person to change the probability. There is always an equal chance of win or loss. It can be compared with tossing a coin where there are 50 per cent changes of the tail and similar chances of the head.
However, in trading traders can turn this table (probability of winning) in their favour through skills and knowledge. Traders can easily anticipate the result which follows patterns, trends, fundamental studies such as cash flow statement, balance sheet and profit loss statement etc. Hence you can easily see that the investors make all efforts to put all the odd situations in their favour with porter analysis, studies and training.
2) It requires money to make more money
It is also the most common stock trading myth among people. People think that to make money out of the stock market one requires a good amount of capital. And hence they conclude that stock investing is a game of rich people.
But there is no truth in this belief. You do not require a massive amount to begin stock trading. A piece of good knowledge and research about the firm and a small amount in your bank account is enough to start trading. Even the most famous trader Warren Buffett begins his first trade at the age of eleven with few dollars. He did not require a million greenbacks to turn it into billions. So why will you require it?
Everyone can begin trading with a little amount which they have.
3) Stock market is for institutional investors and researchers
It is a common feeling among many market participants that financial service providers have a lot of important and well-researched information about the market. Thus they can anticipate the market fluctuation accurately. It is a totally wrong assumption. It is because stock market predictions are never totally precise, and as far as information related to the market is concerned, the internet has paved the way it.
Market participants are in a far better condition in comparison to these institutional traders who trade with constant pressure to make out gains in every quarter. An individual trader can think long term. Some setbacks present in the short term are expected to cancel out in the long run and hence offer relatively more stability to any investment.
4) Stock which surges in value are bound to come down
Neither Laws of physics nor the gravitational law work in the case of the financial market. What surges in value might not be forced to come down. There are various shares which have remained constant over an interval and have also withstand the recession.
If you are the one waiting for these stocks to decrease in terms of value, then remember that you will miss the opportunity to buy them at the current price. The price may also move up further, and with this, you will lose a chance and will regret it afterwards.
The price of a stock reflects the growth or condition of the firm, and this fact also stands true that shares undergo a correction.
Hence an investor needs to go through all the minor details of the company before investing. One wrong decision in the market of uncertainty can bring you a portion from top to an extremely low level.
5) A little knowledge on the market is better than none
You must have heard the famous saying that an empty vessel makes much noise. This stands true in the context of the financial market. While it is right that something is better than nothing, but in the market, you require deep knowledge. Stock trading is a double-ended sword; it generates massive profit but also comes with risk. Thus, it is better to enter with thorough knowledge about market, trading and risk management.
If there is inclination and scarcity of time, it is an excellent idea to opt for an advisor or broker which ensures that the investment you are making is right. Along with the investment, they also ensure the safety of your money.
One such broker is ROinvesting. A leading financial service provider who works under the guidance of the Cyprus Securities and Exchange Commission. It is an authentic firm protecting your funds and accounts from fraud. It also provides various advanced tools and platforms for carrying out trading at just $250.
6) It is risky to invest on your own
It is a fact that risk in stock market trading comes not having deep knowledge rather than from what you are doing. Definitely, without knowing anything, you can’t expect profit in the market, and it is risky too. With proper knowledge and trading, you can mitigate this risk and enhance the chances of your profit.
Once you become proficient in the market concept, no one can stop you from reaching heights. So, you can start along whenever you want. There is no requirement for an expert to guide you.
7) Investing is the simplest task. Purchasing at low and selling at high
The most common myth of stock trading among non-investor is that trading is simple. They think that the market is all about purchasing at a low price and selling it at a high price. The thing that they ignore is that it takes years for a successful trader to understand the concept of lows and highs.
Even if a trader gets a good start and purchases the share at a low price, it is not easy to get an exit point.
8) The stock of a good company is always good
It is another myth of stock trading that is dangerous to follow.
When considering the general case, it stands true that a good firm has a good share. But it does not stand true in all cases. Sometimes the cost of a share can be grossly overvalued. One of the best examples explaining the point is stocks during the dot-com bubble for man technology.
9) Bonds are safer than stocks
Many people believe in the fact that bonds are totally safe. They also think that they are safer than stocks.
This fact is not totally true. They may be safer in comparison to stocks but not every time. Something they are actually riskier. The reason is that many traders do not understand the concept of bonds. They do not understand how they are valued; they only understand the idea of yield.
10) Higher the risk higher are returns
The myth that higher returns are the outcomes of higher risk sounds good at the initial level. However, there are many examples around where the higher risk does not lead to higher returns. Here the risk we are talking about is risk in stock trading.
Time has proven this that many times low-risk stocks have yielded higher return in comparison to higher risky stocks.
The Bottom Line
Sometimes things sound right, but in reality, they do not stand true. It is always good to play safe rather than sorry. The half baked cake might not harm you much, but an investment based on half knowledge can take everything from you. It can even wipe up your account entirely.
The best way through which you can avoid these stock trading myths is strong knowledge. This knowledge will automatically help you to draw a clear line between facts and myths.
If you are thinking of investing your hard-earned money in stock trading, then ROinvesting is the right platform for you. It provides advanced Meta Trader 4 to pursue trading at just $250. The broker also provides technical tools for analysing the market for making a better decision. Visit the site of the broker to open the trading account in three simple steps.