What Is Stock Trading?
Investing money in the stock market can be beneficial, especially if you are investing for a long-term goal such as retirement or a college education for your children. There a number of ways you can invest in the stock market, from buying shares directly or through a broker to choosing a diversified mutual fund.
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Company Ownership
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When you buy a share of stock, you purchase part ownership of that company. You and your fellow shareholders own the company, and it is the job of company management to bring value to those shareholders. Owning stock in a company gives you a number of rights, including the right to attend the company's annual shareholder meeting and the right to vote for or against members of the board of directors.
Brokerage Firms
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In most cases, you buy your shares of stock through a brokerage firm. If you need investment advice and guidance, a full-service broker might be the appropriate choice. You pay more for your trades with a full-service broker, but you typically have access to a wider variety of tools, as well as investment advisers who can help you get started. If you are comfortable making your own investment decisions and choosing your own stocks, a discount broker would be a suitable choice. The range of research tools is more limited, but the commissions typically are much lower as well.
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Mutual Funds
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Stock mutual funds work by combining the money of many small investors and using that pooled money to purchase a widely diversified basket of stocks. Owning a mutual fund typically is less risky than owning a single stock, because the chance of the stock prices of all companies in the portfolio going to zero is virtually nonexistent. You can choose managed stock funds, which use money managers to pick and choose stocks, or index funds, which simply hold all of the stocks in an index, such as the Standard and Poor's (S&P) 500.
Direct Purchase Options
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Some companies allow investors to buy shares of stock without having a brokerage account in place. Companies that run a direct stock purchase program allow individual investors to purchase shares of stock directly, and investors also can put in small amounts of money over time as they build up their portfolios. Some employers also allow workers to purchase company stock through payroll deduction, often at a discount to market price. This can be a way to accumulate shares of stock, especially if you believe the company you work for has a bright future.
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