Everything You Need to Know About Stocks
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It is becoming more and more popular to invest in the stock market. It’s not unusual to hear people discussing about stock investments on social media. And with the market performing so well over the past year, more and more people are interested in equities.
There have been many stories of individuals who have made a lot of money by buying stocks like Tesla or GameStop. However, if you are facing FOMO but cannot bring yourself to invest until you grasp what exactly this whole thing means, then worry no more because this tutorial is all about you. So let us start with some basic things: what are stocks?
The Basics of Stocks
Shares represent a form of ownership in the assets and earnings a company possesses. Because most companies have millions of shares outstanding, one share represents only a tiny amount of total ownership. Being publicly traded, small portions of such firms can be obtained by the public.
These claims on an entity’s equity can be measured using shares that may further be sold or bought (or traded). Some well-known equities are found in major exchanges like New York Stock Exchange (NYSE) and NASDAQ in America, Toronto Stock Exchange (TSX) in Canada as well as London Stock exchange located at United Kingdom . Through these facilities buyers meet sellers to ensure that there is efficient price guessing.
How Can I Buy Shares?
One cannot buy individual shares from these markets; they have to engage brokerage firms as intermediary agents for them. These companies become custodians for what you own. At first it was done verbally via phone calls but now we have web sites offered by brokerage organizations which eases investors’ trading experience when dealing with stocks.
Common trading platforms include Robinhood, Fidelity, Interactive Brokers,TD Ameritrade,and Vanguard;you just need to set up an account , link it with your bank account number or credit card details and begin buying stocks…They communicate with the stock exchanges to execute the order and let you track prices of stocks in addition to how your portfolio is performing instantly.
The Rise of Online Stock Trading
Trading shares online has simplified the process. In the past, brokers were responsible for manually processing trades. This led to price distortions due to delays in communications. Physical stock certificates were also used; however, they could get lost or stolen.
Nowadays, everything is saved on secure online accounts which can be accessed through personal computers or cellphones. These electronic custodians handle transactions, fees as well as tax information. Trades are almost instantaneous and largely without costs making it possible for you to buy stock at your desired price without worrying about significant price fluctuations.
What Happens When You Own Stocks?
Having a stock means that an individual owns a share of a company’s assets and profits but doesn’t give them physical access to its assets or special privileges. The main benefits include:
- Dividends: Dividend paying firms offer cash payments made to shareholders. They are thought as one way for companies to distribute earnings with their investors thereby assisting in maintaining high stock values.
- Voting Rights: Shareholders have an opportunity during annual meetings where they can vote on various issues pertaining to the organization’s activities.Some shareholders ignore this event although it may be good if you keep yourself up-to-date with what happens around you concerning some company policy making procedures.
- Asset Claim: In case bankruptcy occurs, shareholders possess interest in corporate property but only after debts holders and bond holders have been compensated
How Stocks are Priced
Stock prices are dictated by the rates of demand and supply in the markets. Prices go up when there are more buyers than sellers; they decrease when sellers outnumber buyers. The quoted price is the most recent agreed trade price between buyer and seller you see.
Market Orders versus Limit Orders
Before trading, it is important to understand the difference between market orders and limit orders.
- Market Orders: These orders are made at the current market price for stocks i.e. like buying merchandise from a store shelf at the advertised price.
- Limit Orders: These specify either how much you will be willing to pay as purchase or sell out below which you would not accept anything less. Only if the market price matches yours will your trades be executed.
For example, if you want to buy five shares of Disney (DIS) stock and its value increases from $205 to $206, a market order may cost more than expected. A limit order at $205 would only be executed if it dropped down to this figure thereby saving you from overpayment.
The Bottom Line
Short term speculation causes many individuals lose money in stock markets. Long term on the other hand return of stocks represent a company’s cash flows. By owning stock, one can participate in earnings of the company making it potentially lucrative investment.
In general, people own stocks in companies intending for future investment uses since such securities represents tiny ownership interests in such firms. Meanwhile, you buy shares into companies that are performing well financially according to your judgment. As your investment grows , your shares will eventually be worth more than what you paid for them which most people desire.
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