Investing in stocks can be an effective way to build wealth over time, but it requires understanding fundamental concepts. This guide covers the essentials of stock markets to help you make informed decisions.
What Are Stocks?
When a company wants to raise capital, it can issue shares of stock. Each share represents ownership in the company. When you purchase a stock, you become a partial owner (shareholder) of that company.
As a shareholder, you may benefit from:
- Capital appreciation: The stock price may increase over time
- Dividends: Some companies distribute profits to shareholders
- Voting rights: Certain decisions may require shareholder approval
How Stock Markets Work
Stock markets are organized exchanges where buyers and sellers come together to trade shares. Major global exchanges include the New York Stock Exchange (NYSE), NASDAQ, and for Malaysian investors, Bursa Malaysia.
The price of a stock is determined by supply and demand. When more people want to buy a stock than sell it, the price rises. When more people want to sell than buy, the price falls.
Order Matching
Modern markets use electronic systems to match buy and sell orders. When you place an order, it goes to the exchange where it's matched with a counterparty. This process happens nearly instantaneously for most orders.
Essential Terminology
Understanding market language is crucial. Here are terms you'll frequently encounter:
Price Concepts
- Bid Price: The highest price a buyer is willing to pay
- Ask Price: The lowest price a seller is willing to accept
- Spread: The difference between bid and ask prices
- Volume: The number of shares traded in a given period
Market Terms
- Bull Market: A period of rising prices
- Bear Market: A period of falling prices
- Market Capitalization: Total value of a company's shares (share price × number of shares)
- Liquidity: How easily a stock can be bought or sold without affecting its price
Types of Shares
Companies may issue different classes of shares, each with distinct characteristics:
Common vs. Preferred Stock
Common stock typically provides voting rights and potential dividends, but comes with higher risk. In case of company liquidation, common shareholders are paid after preferred shareholders.
Preferred stock generally doesn't carry voting rights but offers fixed dividends and priority in liquidation. It behaves more like a bond in some respects.
Getting Started
If you're new to investing, consider these preliminary steps:
- Educate yourself: Understand basic concepts before investing real money
- Assess your situation: Consider your financial goals, timeline, and risk tolerance
- Build an emergency fund: Ensure you have savings before investing
- Start small: Consider paper trading or small positions initially
- Diversify: Don't put all your money in a single stock or sector
Working with Brokers
To trade stocks, you'll need a brokerage account. In Malaysia, ensure your broker is licensed by the Securities Commission Malaysia (SC). Compare fees, services, and platform features when selecting a broker.
Online brokers typically offer:
- Trading platforms with real-time quotes
- Research and analysis tools
- Educational resources
- Various account types (cash, margin, retirement)
Important Considerations
Key Points to Remember
- All investments carry risk, including potential loss of principal
- Past performance does not guarantee future results
- Diversification can help manage risk but doesn't guarantee profits
- Research thoroughly before making investment decisions
- Consider consulting a licensed financial advisor
Conclusion
Understanding stock market basics is the first step toward becoming an informed investor. While this guide provides foundational knowledge, successful investing requires ongoing education and careful analysis. Remember that investment decisions should align with your personal financial situation and goals.
Continue learning by exploring our other educational resources, or refer to our glossary for more terminology.
Last Updated: February 2026
Disclaimer: This article is for educational purposes only and does not constitute investment advice.