Buying Shares – Chapter 2: What are Stocks and Shares?

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Updated: Mar 5, 2019, 13:14 GMT+00:00

This is chapter number 2 out of 19. Read the rest: Read Buying Shares – Everything that you Wanted to Know but were too Scared to Ask – Chapter 1:

Buying Shares – Chapter 2: What are Stocks and Shares?

This is chapter number 2 out of 19. Read the rest:

Read Buying Shares – Everything that you Wanted to Know but were too Scared to Ask – Chapter 1: Introduction

Stocks or shares are units which large companies use to raise capital for their operations. Funds are required by every company for their normal operations- some use it to expand operations, to buy new assets and companies and to pay of debtors.

There are two options companies can use to raise these necessary funds:

They can borrow money from banks or institutions or raise them themselves.

Borrowing money becomes very expensive over time as the interest rate is also paid back and hence most companies favor raising the funds themselves. To raise the money, companies offer rights or a fraction to investors in the form of shares.

Stocks characterize part rights in a company by a shareholder. The investor exchanges his money for shares to get the right to take part in important company votes as a shareholder. One vote is awarded for each share owned by the shareholder. He can also share any profits that the company makes in the form of dividends.

Depending on the success of the company the value of the shares will rise or sink. If the company has excellent fiscal performance, the value of the shares will go up and likewise the value comes down if the company does poorly. The shareholder can earn returns by selling his shares at a higher price than he had bought them.

Most investors have tendency of buying the shares and never thinking about them afterwards. All they do is earn profits from the dividend checks given each year. However, there are investors who buy shares for the only purpose of selling them after a raise in their price.

These shareholders will need to trade these shares. The stock market is the place where they trade shares. In UK, this market is known as the London Stock Exchange (LSE). In New York, yep you guessed it; it’s the New York Stock Exchange. Stock trading is the practice of buying and selling shares in companies through the stock exchange, with the end goal of making a profit.

It might seem quite simple (buy and sell), but stock trading can be very risky particularly for those who do not know the ins and outs of trading. A lot of traders have lost all their invested money trying to make stock trading profitable. Some have even lost their entire life savings – this is considered gambling. That’s the difference between a good stock trader and a lucky one. A lucky investor is leaving too much to chance. The professional investor researches the market and the company extensively before buying their shares.

With an appropriate strategy, with practice and education, anyone can evade the risk inbuilt in stock trading. An investor with appropriate stock trading education can craft a very decent livelihood in a short time. What’s more, with simple discipline, anyone can be transformed into an outstanding stock trader.

For someone who has never traded before you might feel like now is the most awful time to get involved with trading the markets. All we see on the business news each day is doom and gloom, there are also opportunities to do well from stocks and shares in a slow economic period (bearish market). Take a minute to discover a few fundamentals about the stock market.

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Table of Contents

Intro

Intro