An introduction to the stock market - A helpful guide for the beginners
Before investing in the stock market, an investor must always try to know about the nooks and corners of the stock market. Though the investment market is known for the huge returns and gains, yet it is one of the most risky markets when it comes to incurring losses. To top it all, the stock market has more risks than any other financial instruments. Getting yourself educated about the stock basics is a prerequisite before taking the plunge into this market. Read on to know the basics of the stock market and get to know how you must deal with the stock market.
What is a stock?
The first thing that you need to know before investing your hard-earned money in the stock market is the definition of a stock or a share. A stock is the least unit of ownership of a particular company. Thus, owning a share of a particular company is becoming a partial owner of the company. Your stock profits immediately get attached with the performance of the company. With good performance, your stock value rises, and with poor performance of the company, your stock depreciates in value.
One of the most interesting features of the stock market is the idea of limited liability. If the company, whose stocks you've invested in, loses a lawsuit that is filed against it and pays a huge amount of money, your stock will become worthless. Therefore, it is suggested by most stock market experts that one must research the past performance and the future financial goals of a company before buying its stocks.
What are the 2 types of stocks?
There are usually two kinds of stocks, common stocks and preferred stocks. Most individuals usually hold common stocks.
Common stocks: The common stock is the bulk of stock that is usually held by the public in general. With a common stock, you get voting rights and the right to share through dividends of the company. The news that you always hear about the up and down movement of the stocks, are usually common stocks.
Preferred stock: The preferred stocks have fewer numbers of rights than the common stocks but for one important are, the dividends. There are many companies that only issue preferred stocks and these companies pay consistent amounts on dividends. Preferred stocks mostly have more power on dividends over the common stocks.
There are hundreds of people who invest in the stock market, but very few are able to make money through effective investing methods. If you're thinking of investing your money in the stock market, make sure you first arm yourself with the stock basics and then take the plunge into the stock market. You can at least remain certain about your profits.
Steven is a contributory writer associated with the Mortgagefit Community and has written several articles for various financial websites. His expertise is in the mortgage and other market industry and he has made significant contributions through his various articles.