What are Stocks?
Stocks are one of the many ways people around the world make large amounts of money everyday. Stocks are how normal people invest in public companies and for those companies stocks are a way to fund products and company growth.
Why Buy Stocks?
When one buys stock in a company they are essentially buying an infinitesimal share in that company. Now, that doesn’t mean they will get to meet Bill Gates at Microsoft’s next shareholder meeting, but they can make a return on investment based on how the company does. There are two basic ways an investor can make money off of stocks: the stock price rises or they get a dividend. Dividends are amounts paid to shareholders, typically every quarter out of the companies income, now not all companies pay dividends but some do.
How do Stocks work?
Companies sell stock in their business to raise money to fund new product lines, initiatives in other spaces, grow their company or pay off debt. To be able to buy shares of a company they need to be a public company which can take place through a process called IPO, initial public offering. Then, the company is available to buy stock in and their initial or starting stock price is based on the valuation of the company just like any other investment. When you buy a stock you are buying it from another investor selling stock and vice versa when you are selling stock. The trading of stocks is handled through a stock exchange such as the NYSE or the New York Stock Exchange. Investors are represented by stock brokers who place the orders for them to buy or sell stock in any given company. Nowadays, many investors have online stockbrokers and they use those platforms to buy and sell on their own.
How long do Investors hold Stocks?
There are many different types of trading which investors like to associate with, but there are two main categories of the stock market: short-term and long-term. Short-term consists of day trading and trading on a weekly basis, this is very volatile (high volume) trading and can be very risky. Long-term trading is what a stock trader can make the most profit in based on the scope of a company but it can be very hard to predict and bet on a company for months if not years with large amounts of money. To learn how to invest click here.