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Step 1
Know that common stocks represent an equity interest in a corporation. Each share represents a share in the company's profits and entitles the holder to dividends and voting rights.
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Step 2
Be aware that dividends are the disbursement of company profits to shareholders paid either in cash or more shares of stock. Dividends are usually paid each quarter and the amount is decided by the company's board of directors.
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Step 3
Know that the Dow Jones Industrial Average Index is a measure of the average of 30 of the country's most widely traded stocks. These stocks represent many of the heavyweights of American industry, including AT&T and American Express. Dow Jones & Co. started the index.
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Step 4
Become familiar with the term limit order. This is an order to exchange a stock, either buying or selling, at a specified price. The customer can either set a specific rate or a range of prices. For example, she could buy the stock if it's at $5 or below or if it's between $5 and $6.
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Step 5
Know that a preferred stock is a stock that provides dividends at a specific rate and is disbursed to shareholders before the dividends that holders of common stock will receive. In case of a company's liquidation, preferred stockholders will be paid first.
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Step 6
Know that a stock symbol is the standard way of identifying a corporation's stock on an exchange. Each company is identified by a 4 or 5-letter symbol.
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Step 7
Become acquainted with the term diversification, in which a stock trader buys stock from different economic sector that are unlikely to be affected by similar variables. This will reduce the financial risk in his overall stock portfolio.
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Step 8
Recognize that the Initial Public Offering (IPO) date is the date when the stock was first traded publicly.
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Step 9
Understand that when a trader holds a margin account the brokerage will allow the investor to buy stocks on credit and to borrow from the stocks already in his portfolio. As long as the loan is outstanding interest will continue to be charged.
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Step 10
Know that yield is the return on investment, usually in reference to bonds. This takes into account all costs, including purchase price, interest payments and time until bond maturity.
