I don’t want to spend too long on this, but you must understand how the stock market works before you attempt to spread bet on it (you can substitute spread bet by the word gamble!), just as you should understand racing and odds before you attempt to back a horse (apart from fun, of course).
The alternative is to be a ‘mug punter’ who just places bets randomly. This reduces the game to one of pure chance, and as I have already stated earlier, you cannot win long-term on games of pure chance. Even hardened market players should read this brief section – you may have forgotten what the thing is all about, at its basest level.
Firstly, there is no such thing as the ‘stock market’
Think instead of a ‘market of stocks’. This gives you a clearer picture. Conjure up a picture of a teaming marketplace with buyers and sellers, all trying to make a buck. Some have come to the marketplace to make purchases, some have come to sell their wares.
Both want a bargain.
Let’s also think of a single stock, for example, shares in ABC gold-mining Ltd.
What are the shares worth? Well, a share in a company is just that – if you own a share, you own a piece of that company. If there are only 100 shares, and you own two of them, then you literally own 2% of ABC mining Ltd.
If you needed some cash, you could sell your 2%. Who will by them? Answer? It depends on the price you are asking.
If you offer them free, then the entire population of the globe would rush towards you and stick their hands out. If you offered them for three billion pounds each shares, then not one single person would take them and you would be left with worthless paper. Your shares are only worth something if you can find a buyer.
No buyer? Worthless paper.
It’s just like selling oranges at the market. The market is teaming with other orange sellers, and those wishing to buy oranges. If you make your oranges too expensive, then you will be left with exactly the same number you arrived with, come market close. Make them too cheap and they will all be snapped-up within seconds, buy you will have lost quite a lot of profit you could have made, if your oranges had been realistically priced.
So what determines the ‘realist’ market price for the shares in ABC mining?
Quite simply the market.
What is ‘the market’?
Buyers and sellers meeting at the marketplace to haggle.
Buyer’s only, and no sellers? No market.
Sellers only, and no buyers? No market. You need both.
If you have trouble with this, picture a real marketplace with fifty orange sellers, all with their wares laid out on a blanket in front of them. Trouble is, there’s not one single buyer. Is that a market? Of course not!
Conversely, picture a teaming marketplace with thousands of people, money in hand, there to buy as many oranges as they can stuff into their bags. Trouble is, there’s not one single orange seller there! Not an orange in sight! Is that a market? No, just a throng of hopeful and disappointed people. That’s not a market.
Let us return to those shares in ABC mines.
Suppose everyone wants to buy ABC mines. For example, they have just announced the discovery of an incredible rich new seam of gold in Bolivia. Are your shares now worth more, or less? More of course! The share price leaps up. Suppose everyone wants to dump ABC mines because, for example, the so-called ‘rich new seam’ turns out to be a mistake. Moreover, the seam they are now working has just unexpectedly run out. Are your shares worth more or less? Less of course. The share price plummets.
Those are the basics. In reality, many things affect the price of a particular shares, including some very strange factors! But the biggest factors affecting shares prices is the ‘mood’ of the market. This makes it hard (but not impossible by a long way) to pick winners.
Remember that trading and investing in general is not easy!!! You will need to spend many hours, days, weeks and months learning the basics. Any professional athlete will tell you it’s easy, but it’s not easy to get to that level.