Money — 9 months ago

Stocks Explained! Learn the Stock Definition and Financial Meaning of Stocks

by Perry H.

Stocks, Stock, Stock Definition

What are Stocks?


The term “stock” is used to explain a share in company ownership. Each share is worth something. This worth depends on the company's overall worth. When you purchase shares of a specific company, you own a small component of that public corporation.

You can purchase shares in any public company. When you do, you become the company's part owner. If there is a rise in company values, then the investment value goes up as well. Companies listed in the stock exchange sell shares to get the required funds which are a must for any company to expand its business. To do this, a process named Initial Public Offering (IPO) is done. Only after the IPO does shares get sold and purchased by investors. Shares can only be bought and sold through a stock exchange.

The stock price of any public company is simply what the market determines its value should be. This value is dependent on a number of factors like assets, present profits, and even the anticipated future profits. Other than these three, a number of other factors determine the stock price.

Stocks

Although selling stocks make an excellent move for a company to attain swift growth and expansion, this move comes with a number of downsides. Other than the stratospheric fees the company must pay to the exchange to get itself listed, the former must also be prepared to disclose all financial reports and strictly follow a few regulations. Shareholders are frequently found to pressurize company heads for a better return on their investments. These, although good in the short term, may harm the company in the longer scheme of things.

Stock types

Stocks are available in two principal types: preferred stock and company stock. Buying common stock gets you a portion of the company. You also get voting rights. When you buy common stock, you enjoy capital gains along with dividends. This holds true even if companies are under no obligation to pay a dividend to common shareholders. A dividend, in turn, is cash disbursement of the earnings of the company back to shareholders. This can also be regarded as a reward for investing.

Preferred stocks are different than common ones. An owner of a preferred stock does not get voting rights. In exchange, the holder gets access to a number of financial benefits. One benefit is that the company if it pays any dividend, will pay the owners of preferred stocks first. These stocks are also less risky compared to common stocks. A canny investor has a mix of both common and preferred stocks in a portfolio.

Other than common and preferred stocks, the company can also customize different stock classes in any combination the chiefs of that company want. This strategy is done when the heads of the company want the power to be restricted to a certain cluster of individuals. This can be achieved by providing a larger number of votes to a definite variety of stock more than its compatriots. In case there are multiple stock classes, these are generally designed as Class A and then Class B.

Stock

Working the stocks

When you want to take advantage of the stock market, you should know better than others and take advantage of your knowledge superiority. To do this, you must learn the trade language. Investor language can confuse the lay-person. It is a good idea to know about market timing techniques, investing, day trading, and acquire the skill for stock option trades. Most of all, you must know the basics. It is essential to learn enough so that you get stimulated to learn more and plunge into the stock market.

 


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