Stocks are one of the more intriguing investment opportunities that can provide great sources of income today, and because of that, it’s important to know how they work and exactly what they offer
But to understand these, you must first understand the stock market basics – that is – what stocks are, how they work, and how you can profit off them.
To start with what they are – it’s important to know that stocks mean different things to different people:
A stock is an equity that represents the ownership of a fraction of the issuing business. Individual units of stock are called shares, and each share entitles the owner to a portion of the issuing company’s assets or profits.
To issuing companies
Stocks are a method of raising money to finance company operations and grow business. It is done by offering a portion of ownership of the company to the public in order to receive the commensurate monetary value of each piece or share of ownership. The stock is issued on a public exchange and the process by which this is done is called an IPO
How they work
Once the stocks are on the stock exchange, they can be bought or sold by investors. This is done via brokers on the stock exchange – they act as middlemen between the buyers and sellers.
How can you profit from stocks
The price of stocks is fluid in nature. They are determined by the market i.e the stock exchange, and provide multiple ways to make a profit – these are:
- Natural appreciation: This happens when a stock you’re holding naturally appreciates in value due to a rise in the value of the issuing company itself. This rise in value can be spurred on by the release of the company’s financial records, economic reports, company assets and more.
- Trading: This is the active buying and selling of stocks with other investors to try and make money from price changes. In trading, it’s essential to conduct the necessary research to gain information on company stock. When doing that, you can use Fundamental analysis (Analysis of financial records, economic reports, company assets, and market share) or Technical analysis (The study of past and present price action to predict the probability of future price movements)
- Dividends: These are payments of profit made by the issuing company to holders of their shares.