Stock Market Basics
Stock markets represent and portray the commercial and economical strength of a country. A stock market is a place where people who want to earn money through investment, and companies who can provide those investment opportunities, come together. The trading and investing of stocks takes place in this market.The stock market for beginners can be very daunting and complicated, so if you are interested in making money in stocks, you should know the basics before you put your money into it.
To start, let’s discuss what a stock truly is. All that a stock really is, is a claim to a piece of ownership in a company. When a company needs to get capital, it will market off shares of itself to outside investors. When you purchase a share, you buy yourself a right to a share of the profits. That means if the company makes money, you get a piece. If it loses money, your invested money becomes smaller. Anytime you purchase more stock, you increase the amount of your share in that company’s earnings. Be they positive or negative.
Just because you purchase a share or two does not mean you will be consulted for daily businesses activities of the company. But, your share does also count as a vote for who should be consulted. It is the shareholders that select the board of directors, who are responsible for all the company’s activities.
Next, let’s look at the two types of stocks you can purchase. Common stock is the most prevalent and is typically what is traded most of the time. Anytime you hear someone talking about buying ‘stock’, they are probably talking about having purchased common stock. Common stock is nothing more than a share of a company, and does not entitle the holder to any further benefits.
The other kind of stock you can purchase is called ‘preferred stock’. Preferred stock is a company share that gives the holder a little more benefit than the common stock. A preferred stockholder usually doesn’t get to vote, but will most likely get a dividend for the life of the company. Where common stock provides a less common dividend, preferred stock will give a consistent income. Also, if the company gets liquidated, the preferred stockholders see their money returned first.
In other words, a preferred stockholder will get their investment returned as a priority over common stockholders, while earning a considerable dividend.
Now, what makes a stock price change? Supply and demand. It’s that simple. When a lot of people want a stock, the demand is high and the supply becomes smaller as the demand is satiated. Thus the price goes up.When stockholders want to rid themselves of their shares and there isn’t enough buyers to make them happy, they will lower the asking price to try and garner interest. And this is how the prices go down.
The stock market not only provides you, as a trader or investor, an opportunity to purchase or sell shares or stocks, but also plays an important role in maintaining the cash flow in the economy of a country. If you’re considering putting your money into stocks, you might want to know the stock market basics. Knowing the basics can be the difference between success and failure. Therefore, if you don’t want to lose your shirt in the stock market, you might want to master the basics.