Definition of a Stock
Do you know what a stock is? If you don't, how much does this contribute towards your confusion in the finance world? If you don't understand what stocks are, you are severally hindering your possible returns when investing in the stock market. You should never invest in something you don't understand. Let's first start by defining a corporation.
There are three types of business entities: sole proprietorship, partnership, and corporation. A corporation is run by a board of directories and is owned by many people called it's shareholders. A corporation has to be incorporated in order to sell stock to shareholders.
Each shareholder owns a certain amount of the company. For example, if a person buys 200 shares of stock in a company, they have a 200 share ownership. Most small shareholders such as the ordinary people who invest, rarely own a large stake in corporations. Shareholders don't run the company themselves, but they are responsible for choosing who does.
Shareholders buy shares of stock of a company. This is what makes them a shareholder. What they purchase is called a share of stock. If you were to buy one share or 1,000 shares of Google, you would be a shareholder. Of course, if you bought 1,000 shares you would have a higher percentage ownership than the person who bought only one share.
Why do corporations issue shares of stock? They issue stock to raise money for their company. The money they receive is referred to as equity and is used as capital for the company. For example, let's say company A decides to incorporate and issue stock. They may issue 100,000 shares of stock, sell them for $5 each, and raise $500,000 in capital for their business use. If you buy one or more of these shares, you will be part owner of company A.
How do stocks make money? They increase in value through supply and demand. If you buy one share of Company A stock for $10, you have a purchase price valued at $10. If a lot of people want to buy the stock, they will have to pay a higher price if there are fewer people willing to sell.
Demand for the stock causes the price to be driven up. If the price of your stock goes up to $12, you can sell it for a $2 profit. An increase in demand causes the stock to go up just as a decrease in demand would cause it to go down.
Another way to make money through stocks is to make dividends. When a company has made a net income and wants to pay their shareholders, they do so in the form of dividends. They usually pay dividends quarterly. For example, if you bought 100 shares of a company and the company issues $1.25 in dividends each quarter, you will be paid $125 a quarter or $500 for the year. - 16931
There are three types of business entities: sole proprietorship, partnership, and corporation. A corporation is run by a board of directories and is owned by many people called it's shareholders. A corporation has to be incorporated in order to sell stock to shareholders.
Each shareholder owns a certain amount of the company. For example, if a person buys 200 shares of stock in a company, they have a 200 share ownership. Most small shareholders such as the ordinary people who invest, rarely own a large stake in corporations. Shareholders don't run the company themselves, but they are responsible for choosing who does.
Shareholders buy shares of stock of a company. This is what makes them a shareholder. What they purchase is called a share of stock. If you were to buy one share or 1,000 shares of Google, you would be a shareholder. Of course, if you bought 1,000 shares you would have a higher percentage ownership than the person who bought only one share.
Why do corporations issue shares of stock? They issue stock to raise money for their company. The money they receive is referred to as equity and is used as capital for the company. For example, let's say company A decides to incorporate and issue stock. They may issue 100,000 shares of stock, sell them for $5 each, and raise $500,000 in capital for their business use. If you buy one or more of these shares, you will be part owner of company A.
How do stocks make money? They increase in value through supply and demand. If you buy one share of Company A stock for $10, you have a purchase price valued at $10. If a lot of people want to buy the stock, they will have to pay a higher price if there are fewer people willing to sell.
Demand for the stock causes the price to be driven up. If the price of your stock goes up to $12, you can sell it for a $2 profit. An increase in demand causes the stock to go up just as a decrease in demand would cause it to go down.
Another way to make money through stocks is to make dividends. When a company has made a net income and wants to pay their shareholders, they do so in the form of dividends. They usually pay dividends quarterly. For example, if you bought 100 shares of a company and the company issues $1.25 in dividends each quarter, you will be paid $125 a quarter or $500 for the year. - 16931
About the Author:
Before you start investing, you should have a very good grasp on the stock market investing basics. When you know what you are doing and know how it all works, you can come up with a stock investment strategy.
posted by Edgar at
03:24
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