To start with, have you ever wondered what a stock actually is? A stock is an investment that shows partial ownership of a publicly traded company. Every share of a purchased stock equals a portion of ownership in a company. When a company leaves its private status and goes public, what happens is that it is broken down into millions of shares. Then the company sets a price on each share, for instance 10 dollars. The founders of the company as well as board members, employees, investors, and more, keep a certain percentage of the shares.
What happens next, is that a set amount, for instance 30%, becomes available for the public to buy on the so-called stock market. Once the market opens, people start buying the available shares, and as the day moves along, the price also increases or decreases based on what people are willing to pay for or sell their shares for. Since the market is open every day, people can continue buying shares as long as other people sell theirs and vice versa.
Those people owning stocks also have the right to vote in the company when there are new situations or changes to be made. Last but not least, there are different types or classes of stocks, which often have different voting rights, and are treated differently during bankruptcies or other major changes to a company.
What is the stock market?
The stock market, also known as the stock exchange, is the general name given to the place people go to buy stocks, bonds, mutual funds and many more. Think of it as a large stock mall, with multiple stores inside that hold various kinds of stocks. Each store is called an exchange, which actually manages certain types of stocks.
The Dow is the most famous and basically the largest stock market index of the 30 most prominent companies in the U.S. The Nasdaq is another stock market where technology shares are listed. The S&P is a group of 500 companies.
There is also the over the counter exchange where international, and small businesses are sold. It is vital to remember that there is a stock market in every country. When a company is “listed”, this means that stock can be bought and sold only at a certain exchange. Therefore, if a company is listed on the Hong Kong, Korean, or London Markets then people need to have access to those markets in those countries.
How to gain from stocks
There are two main ways to make money from stocks:
- Buy the stock for less than you sell it.
Most stocks can be sold at any time during market hours. Usually, the bid price, which is what you want to pay for it and the ask price, which is what people want to sell for, are very similar to the market value.
- The stock pays a dividend.
A dividend is a set amount that the company pays to shareholders. Each company specifies what amount they pay—which is usually calculated as a percentage of their earnings— and when they pay it. Most stocks pay dividends every 3 months while some pay every 6 months. There also those who pay special dividends every now and then which is considered like getting a bonus from your employer.
Disclaimer:
This information is not considered as investment advice or an investment re commendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.
