What is Stock?
In simple words “stock” refers to a share of ownership in a particular company or organization. It is a part of a company’s assets & income and it enables the organization to raise the capital for its various investments & businesses. Owning a share in any organization makes you an owner of a very small fraction of that company depending on the number of shares you are having with you. Let’s say you are holding 2 lacs share of Walmart and Walmart has 20 Million shares as its capital. Owning 2 lacs would mean that you own the 1% of the ownership in Walmart.
That is a very tiny percentage for the company but for you that 1% has some value. You can call it a stock, share or equity, all are the same thing. It is a stake in any organization that will give you a portion of the company’s profits. Stocks are most commonly traded in the share market.
A shareholder can fully participate in the company’s assets, profitability and decisions based on the laws which are driving the company regulations. Additionally, every shareholder has voting rights and they can participate in the company decision-making at various shareholders meetings.
Shares can be bought or sold via an exchange at the stock market, such as the New York Stock Exchange (NYSE) or Canada S&P/TSX.
Let us take an example to understand it better:
Imagine that you want to inaugurate the grocery shop and you don’t have the sufficient funds with you. You only have $10,000 to start and in order to buy the necessary assets and stock, you may need to ask your friends and family. To get the business off the ground, four friends and family members offered you $10,000 each to start your business. Now you have $50,000 to start it and in return of this $40,000 you have agreed to give each of them 10% of the profit. This is how stock works for the company to raise funds at a much larger level.
Stocks are the basis of an investment portfolio and they are subject to orders placed by traders in the share market. Stocks can be bought from most online through stockbrokers or online platforms
What Are Few Things You Need To Know About Stocks?
- Investors who do best when they buy and hold the stock for long term. That means they own a diversified portfolio of many stocks and hold on to them through good times and bad.
- Investing in individual stocks takes time. You should research each stock you purchase, which includes a deep dive into the bones of the company and its financials. Many investors opt to save time by investing in stocks through equity mutual funds, index funds and ETFs instead. These allow you to purchase many stocks in a single transaction, offering instant diversification and reducing the amount of legwork it takes to invest.
- There are two main types of stocks: common and preferred. Most investors own common stock in a public company. Common stock may pay dividends, but dividends are not guaranteed, and the amount of the dividend is not fixed. Preferred stocks typically pay fixed dividends, so owners can count on a set amount of income from the stock each year. Owners of preferred stock also stand at the front of the line when it comes to the company’s earnings: Excess cash distributed by dividend is paid to preferred shareholders first, and if the company goes bankrupt, preferred-stock owners receive any liquidation of assets ahead of common-stock owners.
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