THE STOCK MARKET EXPLAINED, SIMPLIFIED

The stock market has existed for several decades now, and it’s still alive and kicking.  It promises a lot of wealth and profits for those who know how to play their cards right.  It also gives tons of chances for one to improve financial status when it comes to money management and financial discipline.

For those who are just getting to know how the stock market works, here is an article that discusses the workings of this money-making machine.  Read on and learn more about the Basic of Forex Trading stock market.  

Stocks and Shares

Basically, when you buy a company’s stock, you’re buying a piece of ownership from the company.  In many cases, the company issues shares in order to raise funds, which is accomplished through an initial public offering (IPO).  The price of the share is determined by how much the company is perceived to be worth. Another factor to consider when determining the price of the stock is the number of shares being issued.

The shares that traders and investors buy will then continue to be traded on an exchange, like Nasdaq and New York Stock Exchange.

The Reason behind Stock Investing

Why do people trade stocks?  This is because the company’s worth is going to inevitably change over time.  Investors like you can make money depending on how much the company’s value rises or falls.  The price of the stock which you have bought should appreciate in value for you to gain some profits.

It’s widely accepted that over time, the stock market as a whole tend to rise.  This is the reason why investors choose to buy a basket of stocks from various sectors and industries.  This habit is called diversification. Investors then try to ignore the day-to-day or short-term fluctuations in the price of the stocks they own.   What matters is that the company in which they invested does well in the longer-term, ensuring their gains and profits.

Those companies that have already been established and are more relatively stable than other still-growing companies sometimes issue dividends to its shareholders.

A dividend is a slice of a company’s profits that the business sends to its shareholders.   As mentioned above, the company’s stocks will tend to fluctuate, but these fluctuates are independent of the dividend.  Dividends can be small or large, or none at all. If you aim to earn regular profits from the stock market, your best bet would be companies that issue dividend stocks.

And since you’re buying a piece of ownership of the company, you also get to have some voting rights over how the company is run i.e. the decisions made in the business.  There are different classes of stocks and each of them provides different amount of voting rights, typically based on how much stock you have in the company.

As a whole, shareholders can select a board of directors through their individual votes.  They can vote on the major decisions made in the company if they so please.