Stocks And Shares
In a simple term stock means a share in an ownership a company. It represents the company's assets and earnings. The larger the number of stocks and shares you acquire, your ownership stake in the company becomes greater.
You call it equity or stock or share meaning is the same. Holding the companys share means you are shareholder of the company. As a shareholder you have a claim to whatever that company owns. As a shareholder you are eligible in companys earning by way of dividend and you are also eligible for voting rights.
A share is represented by a share certificate. This certificate certifies your name and number of shares you are holding. And this is a proof of your ownership of the company. In the past the shares certificates were available in the physical form. When a person wanted to sell his or her shares that person has to approach broker and they have to fill up the stock transfer form available with the broker to transfer the shares to buyer of the stocks and shares.
But now in today's computer age, you don't have to keep the shares in physical form; your broker keeps the records electronically. You will get monthly statement from your broker showing holding of your shares in various company. With this facility trading of shares becomes very easy and convenient.
Share or stock has its limited liability, means that as a shareholder of the company you are personally not liable if the company is not able to pay its debts. But in case of other companies, such as partnership companies, if this company goes bankrupt the creditors can hold partners (shareholders) responsible. And they can sell of their assets like furniture, car, or house to recover their debt. Being the shareholder of the company to the maximum extent you can lose is the value of investment. Even if the company goes bankrupt for which you are a shareholder you can never lose your personal assets.
Now the question may arise in your mind is why the any company is issuing or offering shares or stocks and shares to common people. The reason is that every company need money to start a business or for expansion and development of the company. To do this, company is selling its shares to common people or Institution or to any other corporate body. The first sale of a stock, which is issued by a private company, is called the initial public offering (IPO).
Investing in stock is risky.
You must keep one important thing in mind that when you invest in stock there is no guarantee that you will get return. Some profit making company is paying dividend, not all the company paying dividend. The other way to get return in stock is appreciation of value of stock in the open market. And some times value of the shares may go down; in this case you may lose money.
Trading of stocks:
Most of the stocks and shares are traded on exchanges. It is a place where buyer and seller meet together and decide on a price. Where trading of stocks take place it is called stock exchange. In the past all transaction were carried out on a trading floor, in which trader are raising their arms, yelling, signaling to each other for buying and selling of stocks. But now in a computer age, trading takes place through network of computer.
There are many stock exchanges around the world. The most prestigious stock exchange in the world is the New Your Stock Exchange (NYSE).
The second type of exchange is called the over-the-counter (OTC) market, in which NASDAQ is the most popular. In this type of stock exchange trading is done through a computer and telecommunications network of dealers. Largest companies used to list only on the NYSE and other second tier stocks traded on the other exchanges. The Information Technology boom in the late 90s changed all this. Now many big companies like Microsoft, Cisco, Intel, Dell, and Oracle list on NASDAQ stock exchange.
There are a lot of stocks exchanges are around in many countries around the world. The American markets are the largest. The other financial hubs are London Stock Exchange and Hong Kong Stock Exchange.
How stock prices are changing
Stock prices are changing everyday depending upon the supply and demand of the stocks.
If there is big demand for a stock of a particular company then the price of that stock moves up. And if more people wanted to sell a stock of a particular company then the price of that stock would fall. This sounds very simple. But while investing in stock one must predict the stock price. Now predicting the stock price is not so easy. There are many factors one should keep in mind before investing in stocks. One of the factors is market capitalization of the company. Secondly the value of the company can be found out by its profit. What is the growth of the company Company has to declare a result four times a year. Each quarter company has to declare their result. If the company is doing good profit then chances are that stock price of such company wound move up. Thirdly one has to study the price earning ratio of the company. This also plays a vital role in predicting the price of the stock. All these information about the companys profit. Market capitalization, price earning ratio are available on the Internet or Magazine or in News Paper also. One has to study all the information about the company before investing in the stock of any company.
What is Bull and Bear Market
The term Bull Market mostly used in respect to the stock market, but really can be applied to anything that is traded, such as bonds, currencies, commodities, etc. Bull market means economy of the country is improving. Gross Domestic Product (GDP) is growing. Stocks are rising. Selecting stock becomes easy because all the most of the stocks are rising. But one has to be very careful because it is not necessary that the Bull Market will last for a long time. Sometimes they can lead to dangerous situations if stock becomes overvalued.
Bear Market: A bear market is when the economy is bad, there is recession in the market and stock prices are falling. Investors find difficult time because there is risk in trading during the bear market. Because they may lose money if they but the stock and market start falling then they loses money in trading. In the bear market one has to wait for time till they get the good companies stocks at a lower price. At this time they should buy the stock and hold the stock and sell the stock price moves up.
To become a successful in the stock trading one has to study the market, analysis the stocks, keep a track on market trend, research the market, one must know the companies profitability, management, expansion and development plan, companys financial position. This study will definitely help investor to earn good profit.
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