Stocks & Shares 101
For some investors, the stock market can be a tempting way to make a good profit, but stocks and shares also carry financial risks that can cost an investor everything she put in to the market. Understanding the basics of stocks and shares can help a beginning investor make good decisions when breaking into stock market investment.
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Identification
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Stocks are investment securities sold in shares on the stock market. Shares are are pieces of stock that indicate that the holder owns a part of the company that sells the stock. Brokers and traders buy stock at stock exchange locations or using electronic methods like telephone or the Internet. According to "The Basics for Investing in Stocks," investors can either work with an online broker and choose transactions on their own, or they can work with full-service brokers who guide the investors' stock choices.
Types
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Stock comes in two types: common stock and preferred stock. Common stock is the stock most people deal with. Ownership of common stock means the holder also owns a small piece of the company. Preferred stock is a special type of stock that is less frequently used. Stockholders who have preferred stock get paid their dividends first, and they get paid first when all of the company's assets--like company-owned buildings, vehicles and equipment-- are sold off. Unlike common stock, preferred stock does not give the stockholder a vote in company decisions, and the stock many have more restrictive rules about when it can be sold.
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Benefits
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The stock market allows investors the opportunity to make money investing in businesses or concepts they believe in. Holding stock also has other benefits. Common stock owners have voting rights in certain company matters and usually receive dividends, or a portion of the company profits, in exchange for holding stock in the company. Unlike common stock holders, preferred stock owners usually do not have voting rights.
Considerations
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The volatility of the stock market makes it an unfriendly place for beginning investors with little money in savings to dive in headlong. Beginning investors should experiment with small stock investments while working to build capital using more reliable investment opportunities like a certificate of deposit (CD), money market account or high-yield savings account.
Stock Markets
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The most popular stock markets in the world are in the United States, Japan and Europe. The New York Stock Exchange and the NASDAQ are the two largest stock exchanges in the United States. The Tokyo Stock Exchange is the largest stock exchange outside the United States, followed by Euronext in Europe.
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References
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- Photo Credit stock exchange image by Christopher Walker from Fotolia.com
