subject: Chapter#1 - Start Stock Trading from Scratch [print this page] Chapter#1 - Start Stock Trading from Scratch
What are Stocks?
In Stock Trading, Stocks are shares of a business. When you purchase them you are purchasing shares/assets of a company. Stock is a share, that any one can buy, in the ownership of a company. Stock represents a claim on the company's assets and earnings. As you acquire more stock/shares, your ownership in the company becomes greater. Whether you say shares, equity, or stock, it all means the same thing.
A stock is represented by a stock certificate. In today's computer age, you would not actually see this document because your brokerage keeps these records electronically, which is also known as holding shares "in street name". This is done to make the shares easier to trade. In the past, when a person wanted to sell his or her shares, that person physically took the certificates to the brokerage.
Types of Stock
When people talk about stocks they are usually referring to "Common Stock". In fact, the majority of stock is issued is in this form. Common stock typically carries voting rights that can be exercised in corporate decisions. In the event of bankruptcy, common stock investors receive their funds after preferred stock holders, bondholders, creditors, etc. On the other hand, common shares on average perform better than preferred shares or bonds over time
The other of stocks is "Preferred stock" that is different from common stock, it typically does not carry voting rights but is legally entitled to receive a certain level of dividend payments before any dividends can be issued to other shareholders. Another advantage is that in the event of liquidation, preferred shareholders are paid off before the common shareholder. Preferred stock may also be callable, meaning that the company has the option to purchase the shares from shareholders at anytime for any reason.
How Stocks are Traded
There are two types of Stock Markets (a) primary market (b) secondary market. The primary market is where securities are created at the very first time (IPO - Initial Public Offering) by new established companies, while in the secondary market, investors trade previously issued securities without the involvement of the issuing companies. The secondary market is what usually people are referring to when they talk about the stock market.
Most stocks are traded on exchanges, which are places where buyers and sellers meet and decide on a price. Some exchanges are physical locations where transactions are carried out on a trading floor. The other type of exchange is virtual, composed of a network of computers where trades are made electronically.
Name of Some Famous Stock Exchanges:
The New York Stock Exchange (NYSE)
The Nasdaq
American Stock Exchange (AMEX)
London Stock Exchange
How to Buy & Sell Shares
The most common method to buy stocks is to use a brokerage. You open accounts with the brokerage house pay some initial fees. Whenever you have to buy or sell shares you contact the broker and then they carry out your instructions. And on every transaction of buy or sell they charge their commission.
Now a days, shares are now bought and sold electronically online through computers. There are plenty of softwares available through which you buy/sell stock and do not need to be dependent on brokers. You just log in to your account and start buying or selling at your own will without any interference of brokers. To have an idea of such a software check the below mentioned link.
