Stock Market 101

Stock Market 101One basic type of financial investing is through stocks. This is purchasing part of a company, therefore making you a part owner in a small degree or large degree based on how much stock of the certain company you own. You get what are called dividends which are profits that the company receives and that you as an owner are entitled to. Unlike bonds, stocks can be very volatile which is why they are high risk. Stocks can go up or down on a whim so you need to make sure you know what you are doing before you get involved in the stock market. Stocks are good however if you are smart because you can make a great return, however be really cautious because at the same time you could lose everything.

That being said it is important to be well educated in relation to the stock market before you decide to invest. One way to get educated is to read Money & Markets Stock Market Newsletter. It is a great resource that goes into depth on the stock market and current trends and issues to be aware of. Another great resource for learning about the stock market is Investopedia. They claim that if done right, stocks can be one of the best ways for building and increasing your wealth. Stocks are considered to be a cornerstone of a financial portfolio so it is important to have a great understanding of them and how they work to best increase your chances for making a good profit. As we already discussed stocks are a share of ownership in a given company. Shares, equity, and stock are all synonymous terms.

That being said there are a couple different types of stock. Common stock is part ownership of a company and this is the most popular and common type of stock out there. This type of stock also has the ability to yield the highest returns over the long term. Next there is preferred stock. This is similar to common stock but some of the rights are different. Typically with preferred stocks you are guaranteed a fixed dividend forever. This is nice because common stocks are volatile. In the event that a company goes through liquidation, preferred stock holders are paid before common stock holders. Now that we understand what stocks are, and the different kinds, let’s talk about how stocks are traded.

Stocks are traded on what is called exchange which is where buyers and sellers meet together and decide on a price. This can either happen in person on a trading floor, or simple via electronic online transactions. There are a few different exchanges you’ll want to be aware of. The New York Stock Exchange is the most prestigious in the world. This is the exchange that the largest companies in America utilize. Much of the trading here is done face to face on a large and noisy trading floor. Next there is the Nasdaq. This is an exchange that utilizes electronic means for trading as there is no physical sales floors. Many large tech companies like to use Nasdaq as their trading hub. Lastly a third exchange is the American Stock Exchange which trades small cap stocks and derivatives mainly.