A man asks a lot of questions throughout his life. Just like a child, sparking his own curiosity will lead to questions, making him thirsty for answers. By asking questions, it is the only way to gain knowledge to feed the human mind with answers until he is fully satisfied.
But knowledge never stops. Every question being asked all lead to another, opening a whole new universe of questions waiting to be answered. As we find something that interests us, then our appetite will trigger the curiosity in us to form questions, craving for answers.
The stock market is every person’s question the first time they hear about it. Is it a market that you can go to buy or sell stocks? What kind of stocks can you buy? Is it a place you can buy all such kind of food?
Well, this article is for you. We’ve listed down the most common questions that are being asked in the stock market world. This will help you in beginning your investment journey if you are interested in investing.
What is stock market?
The stock market is not where you can purchase the kind of products you buy in the supermarket. The stock market is the collection of markets and exchanges where the issuing and trading of stocks of publicly held companies, bonds, and other types of securities take place, either by formal exchanges or over-the-counter markets.
Having troubles with the terms? To put it in layman’s terms, it is a place where people can go to buy and sell shares of companies in an attempt to make wealth for themselves.
Three good examples of a stock market are the New York Stock Exchange, NASDAQ, and the American Stock Exchange. Each of these is stock markets and sometimes referred to as ‘financial markets’.
You can buy and sell shares from a range of different stock markets around the world and use financial websites to get access to free stock market information.
What is a stock exchange?
It’s like a supermarket where you shop pretty much anything under one roof. It is a supermarket for buying and selling of stocks and shares.
Isn’t it just like the stock market? The difference between the two is that a stock market is a general term. A stock exchange, however, is the specific place where the trading is executed.
For example, if you trade in the stock market, it would mean that you buy and sell shares or equity. But if you say you trade in the New York Stock Exchange, it means that you are buying and selling only those stocks listed on the New York Stock Exchange.
What is a stock?
Stocks are units of ownership interest in a corporation or financial asset that provide for an equal distribution in any profits, if any are declared, in the form of dividends. It is also referred to as shares.
A company can list itself on an exchange and issue a vast number of stocks for people to buy or sell. One of these stocks is a single unit of ownership.
There two main types of stocks. These are common stocks and preferred stocks.
Common stocks are the most popular and widely-held type of equity. Holders of this stock share in the company’s profits through increasing dividends and a rising share prices.
However, shareholders receive the last claim on earnings and the company’s assets. To make it simple, if the company gets bankrupt, you receive your payment after all the creditors and preferred stock holders get paid. In most cases, common shareholders get nothing.
Preferred stock pays a predetermined dividend, and the dividends paid to common shareholders tend to vary according to the company’s fortunes.
If a company’s assets are liquidated, the preferred shareholders get to redeem their shares before common shareholders do, giving them the advantage of having a better chance to get some of their money back.
Why buy stocks?
The common answer is to make money, of course.
People invest in stocks for capital appreciation. Their money would grow in value over time. An investor in common shareholders hopes to buy the stocks at a low price, then sells it at a higher price at some point in the future.
What determines the stock price?
This is where risk will be involved when making an investment in the stock market. What makes it risky is the rise and fall of the stock prices according to investor demand. It depends upon the factor that would influences demand for a stock can affect short-term prices.
For example, if an automotive company delivered poorly-made cars and got recalled, investors might worry about the impact on the company’s profits. This would result into a stock sell-off and a declining stock price.
How can you make money from stocks?
Capital gains and dividends. Stock prices tend to increase over time. If you sell it at a price that is higher than what you originally paid, you make a profit, and that is capital gain.
Dividends are stocks that offer periodic cash payments. They attract and retain investments. These are usually offered by large corporations with steady earnings.
However, not all corporations will agree to pay its shareholders dividend, and some companies never even pay a dividend.
How do you buy and sell stocks?
Thinking about buying your own stocks?
In this generation, the vast majority of individual investors buy and sell their shares online. Unlike years ago, you would need to telephone a broker to buy and sell shares for you. Today, all you need is a computer, or even a smartphone, and an internet connection.
Investors usually purchase shares through stockbrokers, who make trades for their clients. When you make a trade with a broker, you generally have to pay a transaction fee.
If you want to avoid brokerage fees, it’s sometimes possible to purchase shares of stock directly from the company that issues the stock.
There are legal safeguards in place to protect individual investors from fraud or the bankruptcy of your stockbroker.
Can I become a millionaire through investing?
Ever heard of Warren Buffet? He became not only a millionaire, but a billionaire, through investing in the stock market. He is one of the famous investors that became a legend in the financial world.
But never forget about risk. You can also lose your house if you’re not careful.
If you want to become a millionaire, it takes dedication and hard work to get what you want. You will encounter mistakes, failures, and success through your journey.
Remember, investing is not gambling. If you are gambling through your investments, then you’re not doing it right.
Millionaires didn’t get rich overnight. Start small and learn along the way. If you can’t bear to see the value of your shares go down, don’t give up. Research and plan your own strategies.
It’s not going to be an easy road from here. If it is easy, then everyone will be a millionaire. If you have the dedication, regardless of money and time, you have the power to live the life you want, even if you start small.
From a simple question of ‘what is a stock market?’ to ‘can I become a millionaire?’ everything is limitless. These questions are the basics, and it is going to get a lot better along the way. Go ahead, ask some more questions and find the answers for yourself. You never know what the future offers and what lies beyond those doors of opportunity waiting to be opened.
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