Learning the basics of the stock market is essential if you’d like to understand how people make great piles of money in the stock market trade. The news of a friend who made a bundle with day trading or a colleague who stumbled into a hot stock tip may induce you to jump into the stock market as well.
Investing in stocks can indeed build up your investment portfolio. However, if you’re not careful you may end up losing a lot of money in the end. So it’s rather important that you at least understand the basics of the stock market before you begin investing your money in it.
Do you know that the stock market is composed of two sections? The first is the primary stock market where the shares are created by companies and are generally offered to the public first through an initial public offering or an IPO. Then there is the secondary market where established stocks are exchanged and traded among investors without the involvement of the companies who issued the stocks. Usually when people think about investing on the stock market, they tend to think only about the secondary market.
What are Stock Market Shares?
What are stocks or shares of stocks? Shares, or stocks, are individual pieces of ownership of publicly listed companies. When companies need to raise capital, then sell off little portions of the company so that investors may become partial owners of that company. Eveytime you buy a stock you buy a share of ownership in a publicly listed company. You become a shareholder. As you increase the number of stocks you have in one particular company, you increase the percentage of ownership you have.
Now that you have become a shareholder, you are entitled to your share of the company’s earnings. These are usually paid as dividends, although not all companies offer dividend payments. You’re also entitled to exercise any of the voting rights that may be attached to that stock. However, this doesn’t mean you have a say in the daily operational running of that business.
Stock Market Investment Strategies
There are several types of stock market investment strategies. Day trading is growing in popularity as a way to smaller investors to begin building capital. The basis behind day trading is to buy a stock in the early part of the trading day and hopefully sell it again at a profit before trading closes.
Long term investors tend to purchase many different stocks in a diversified range of companies in various sectors to spread their risk. These investors tend to hold stocks for longer periods of time, allowing the value of their stocks to appreciate. They also receive dividend payments, either in the form of a check or as a dividend reinvestment plan, where the company issues stocks to the value of the dividend payments to the shareholders to add to their portfolio.
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