What is a stock? With all the chatter surrounding Telsa, Tik Tok, and Google, you’re probably wondering what a stock is and how I can get a piece of these companies? Hopefully, this article will help your level of understanding and realizing that buying stocks is quite easy! And a really cool world to get into.

What Is a Stock and How Does It Work?

  • In the simplest terms, a stock is a security representing a portion of the ownership of a business. Another term that is frequently used instead of ownership is ‘equity’. More importantly, a single unit of stock is known as a share and corporations sell shares to raise operating capital. Stock market classes for beginners can help you understand how to trade.

How Does the Stock Market Work?

What is a stock

The ever-elusive stock market works like an auction house where traders buy and sell shares of stocks. For those of you completely green, stocks are only small pieces of ownership of a public company. 

More often than not, the stock prices reflect opinions. Opinions of what the companies value is, what it “might” be worth down the road, etc. Likewise, traders who think the companies outlook looks promising bid the price up. Contrastingly, those who believe it will do poorly bid the price down. 

Did you know that The Dutch East India Company was the first reported issuer of common stock? Back in 1602, the company issued shares to raise needed funds for their operation.

I wonder if they had a penny stocks list back then too?

Buying and Selling Stocks

What Is a Stock

To purchase or sell stocks, traders and investors can use one of several stock exchanges in various countries or can participate in a private sale. For many investors, these shares form the basis of an investment portfolio.

Whereas day traders buy and sell stocks in the same trading day. Ultimately, the end goal is the same: To make money. 

However, investors are in it for the long haul. In my opinion, if you’re interested in day trading, ensure you’re an investor first. Set up automatic investments into your retirement account first, then use the leftover money to day trade.

You have to know what a bull vs bear market is in order to know whether to buy or sell stocks. 

Who Regulates the Stocks You Buy?

Luckily, the government usually regulates transactions to protect from fraudulent practices. The performance of these investments often is better than most other types of investments and can be acquired from most stockbrokers who operate online.

However, be cautious you’re opening a brokerage account in a country with loose or no regulations. 

Whichever stock you purchase, you’ll want a broker with a reputation for fast and accurate order execution, low commissions costs, and cutting-edge tools. Check out our list of trading companies

When I Buy Stock in the Company, Do I Own It?

The short answer is: no. It is essential to understand that those who own stock in a company do not technically “own” the company.

Instead, depending on the type of shares owned, shareholders may be entitled to a portion of their earnings. As you may know, if you own stock in dividend-paying companies, some pay a nice payout each quarter.

Stock market jobs allow you to either trade these companies for others, or trade them for yourselves. 

Why Do People Buy Stocks?

  • People want to make money. As a result, you trade the stock market. However, you only buy stocks on a dip, or a reversal. You can trade a stock split, earnings, news, rumors, etc. Know your risk management, strategy and price target so you know if you want to buy a stock or wait.

What Happens If I Own Stock in a Company That Goes Bankrupt?

Great question! Understanding the difference between owning shares and owning a business is important.

As a legal person, a corporation can borrow money, file taxes, and own property, including the corporate offices and equipment. Other persons or businesses can also sue a corporation. 

Property owned by the corporation is distinct from the shareholder’s property. This distinction limits the liability of both those who own shares and the corporation. Now this distinction comes into play if the corporation declares bankruptcy

The judge can order the company to sell all its assets, but the personal assets of any shareholders are not at risk. Conversely, if one of the major shareholders goes into bankruptcy, the assets of a corporation cannot be sold to pay off creditors of this shareholder.

Separation of Control and Ownership

To restate the issue of ownership: shareholders own shares issued by the corporate entity, while the corporation owns its assets.

An investor who has one-third of the available shares of a company doesn’t own one-third of the business; instead the shareholder owns 100 percent of a third of the firm’s shares.

Why I Love to Own Stocks

  1. Voting rights
  2. Printing money
  3. Dividends

Voting Rights

I Love Stocks

Now that we’ve figured out what is a stock let’s move on to the benefits of stock ownership. When you own stock in a company, there are certain rights and benefits which come with ownership.

You can attend and vote in meetings of the shareholders. You can receive financial profits that come in the form of dividends if and when dividends are issued and distributed. As the percentage or number of share ownership increases, the voting power also increases. At the same time, this allows the shareholder to control (indirectly) the direction of the firm in question.

The control over the firm by its shareholders is handled through the make-up of the Board of Directors. The Board of Directors has responsibility for increasing the corporation’s value. Usually, professional officers or managers manage the day-to-day operations of a company. At the same time, when a company’s sold, the transfer of ownership occurs through the transfer shares.

Printing Money

Stock ownership also brings the right to sell shares to another person or company for profit! That’s where the wonderful world of day and swing trading comes in. I’ve seen many traders make handsome profits, me included from trading. 

Dividends

For most stockholders, the process of managing a company is not their end goal. The advantage of being a shareholder is in two areas.

Firstly, the shareholder may be entitled to a part of a company’s profit, often issued as periodic dividends. Owning more shares means more profits from dividends—however, not all corporations issue dividend payments.

Instead, the corporate profits are invested back into the company. Secondly, this increasing value of these corporate retained earnings means that the value of their stock increases.

Two Stock Classifications

Like I mentioned above, your rights depend on the type of stock you own. For starters, there are two different stock classifications: Common stock and preferred stock.

In the first place, the owners of common stocks are typically able to exercise voting rights at shareholder’s meetings. Not only can they vote, but common shareholders also have the right to the dividends issued by the firm. Yay, money!!!!!

On the other hand, the other classification of stocks is ‘preferred’. These shareholders have a higher priority claim on corporate earnings than common shareholders.

Dividends go to preferred stockholders before common stockholders. In the unfortunate scenario, the corporation goes bankrupt; preferred shareholders have priority.

Raising Money by Issuing Additional Shares

Companies can choose to issue additional shares if they need to raise cash for equipment purchases, expansions, or other operational costs.

But, this doesn’t come without consequences. The negative side to such an action is that the existing shareholders’ rights and ownership become diluted (unless they choose to purchase any of the new shares).

Alternatively, corporations can choose to buy back shares. This action would benefit those shareholders who are already on corporate books, as the value of their shares would increase.

Closing Thoughts

If you’re serious about learning how the stock market works, you need to put in time and effort. By practicing diligently and honing your technique–making a living from day trading is within grasp.

I firmly believe it takes about six months to a year of hard work before you start seeing those consistent profits (which may be minuscule in the first year).

Like life, being consistently profitable in the stock market is not a destination. You don’t become profitable and then get to relax.

Each trading day demands focus on following your trading plan. As we say at Bullish Bearsplan your trade and trade your plan.

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