Stock Market Basics

Stock Market Basics

Basics of the Stock Market

Stocks, a term used to symbolize an investor.s ownership of a company, are typically traded on exchanges, a mechanism that allows buyers and sellers to converge and engage in the process of buying and selling of stocks.

An investor who buys a company.s stock becomes one of the company.s owners, or a shareholder, and theoretically owns a percentage of everything the company owns.the percentage being determined by how much stock the shareholder owns. In reality, however, only those who own large amounts of shares in any particular company have any real power to change the course of the company.

There are a number of different exchanges in operation through which securities can be bought or sold. The more popular exchanges include the New York Stock Exchange, the Nasdaq, the American Stock Exchange, the London Stock Exchange and the Hong Kong Stock Exchange.

One of the first things investors should learn is the difference between common shares and preferred shares.

Investors who buy the former type, which refers to venture capital, are more likely to lose all or part of their investment if the company ceases operations. The reason for this is that preferred shareholders, creditors and bond holders rank higher than common shareholders and are therefore first in line to recoup costs if the company goes under.

Investors who buy the latter type of shares have greater rights than common shareholders but less rights than creditors when it comes to company ownership. Preferred shareholders not only have more say in company decisions than common shareholders do, but also receive a higher dividend than common shareholders do.

Investors can purchase stocks either through a brokerage or through Dividend Reinvestment Plans and Direct Investment Plans.

When it comes to using a brokerage, investors have plenty to choose from. If investers are inclined to leave everything into the hands of the experts, than full-service brokerages is the way to go. However, the using full-service brokerages can be expensive, so some investors tend to go with discount brokerages. That said, discount brokerages do not provide anywhere near the level of personalized assistance that full-services brokerages do.

When it comes to using Dividend Reinvestment Plans or Direct Investment Plans, investors essentially purchase stock directly from particular companies. Not all companies over such plans, however.

As for why stocks fluctuate in value, the answer, simply, is supply and demand. If a lot of people buy