The stock market as a term is something that is used to describe a place in which shares and stocks are bought and sold. When someone throws the term stock market out into conversation, most will immediately think of trades and investments. This thought process is definitely not wrong, however there is far more to the stock market than the aforementioned. It is a realm in which businesses rise and fall and investors can go from poor to prosperous. Things can also swing the other way too, as risk is an important element of the stock market as well. This short guide looks at what exactly is the stock market and how you can go about getting involved.
What are Stocks?
Stocks and shares, when purchased, constitute a form of company ownership. Obviously, unless you are multimillionaire choosing to buy up a large percentage then you won’t have a direct input into a company. But, what it does mean is that as an investor, you have helped the company raise capital and can reap the rewards from a company’s success in the form of dividends.
Why Companies Sell Stocks?
The reason as to why a company issues an initial public offering (IPO) and sells stocks vary. However, at its core will their general need to raise funds. Usually the purpose of raising money will be to lower debt, or further the company’s market presence via new products and projects. It is similar in the sense that the US Federal Government sells bonds to raise funds, companies do the same but by selling stock on the stock market instead.
How stocks work?
After acquiring stock or stocks via the stock market, you become a shareholder. This means when the company’s profits rise so will your share in such, but should they fall your investment value will more than likely diminish. Obviously, the key is buying stocks low and selling them high, however it sounds easier on paper than it actually is. Stock prices rise and fall every day and can have wild swings in a matter of hours depending on the current level of market volatility. When you invest in stocks, you should be looking long term and hope that said stocks will come out of any market volatility at a higher price than you purchased it for. The stock market at its core is a game of patience and timing.
Why invest in stocks?
In this day and age investment opportunities are waiting for you around every corner. Stocks are just one of those opportunities, but why should you put your focus into the stock market? What makes it more viable than exotic investments? The answer is simple; stocks will provide higher potential returns than any other form of investment when utilised correctly. By educating yourself and using analysis correctly, you can make the right choices and further your capitol. Picking the right businesses can bring you untold rewards, so be patient, become knowledgeable and focus, in order to make your hard work in the stock market be profitable.