Stocks are portions of ownership in a company, which are for sale. They’re also known as equities or shares. Buying stocks allows you to own a small part of a company. Having shares in a company will also allow you to have a part of, or claim on, that company’s earnings and assets.
Stocks can be categorized into two types: preferred stock, and common stock. Having common stock allows you to have a say in company decisions. You can receive dividends, and you can attend shareholders’ meetings.
Having preferred stocks, on the other hand, doesn’t allow you a say, or have voting rights, in the company. However, you’ll have a higher claim on the earnings and assets. You’ll also enjoy higher priority when receiving dividends. Before common stockholders get theirs, you’ll get yours first. Even if the company gets in trouble and has to liquidate and/or file for bankruptcy, you’ll still be prioritized in getting your share.
Ownership and Shares
Your ownership of the company depends on how much stock you have. If a company has 10,000 shares available in the market, and you own 1,000 of them, you basically own 10% of the company.
In times past, stockholders were given paper stock certificates called securities. The number of stocks a person owns was indicated on the certificate. This practice has been outdated, because stock records are now electronically stored.
When a company is founded, the founder and its initial investors are the only shareholders. And when the company reaches a point wherein they need more funds, they can opt to open their company to the market. This is done by creating an initial public offering, or IPO. When the company does this, the company will transition from a private to a public company.
As the name implies, this is the place where company stocks are bought and sold. In past times, trading in the stock market was done physically. Now, with the emergence of the modern computer and massive improvements on Internet connectivity, everything has become virtual.
The basic concept in the stock market is to buy a share in a company for a low price, and to then sell that share for a higher price. The difference between the prices is where you make a profit.
The prices of stocks fluctuate from time to time, and can be caused by multiple factors. A company’s stock will lower if it experiences a massive loss or reputational damage. A company’s stock will improve if it experiences great success, or improved reputation. Economic weather, political issues, and even a single scandal can create huge pushes and pulls in the stock market.
Before you buy your first stock in the market, it’s recommended that you master the basics. You should become familiar with all the stock market lingo. You should also know the risks and rewards that come with playing in the stock market. An initial investment of $500 is a modest amount, but financial experts recommend that you have a nest egg, or some emergency savings, stowed away in case your stock market endeavor isn’t fruitful.
Lastly, learn as much as you can to the point that you can understand stock market news as if it’s daily gossip.