You cannot work well if you don’t understand your craft. This is the same as the stock market. You can’t formulate a good trading plan if you can’t understand its basics. The stock market or Forex trading might look mysterious and dangerous to venture for some people. There are a lot of stories about success and lost fortunes. Above all these things, a better understanding can be beneficial throughout stock trading.
Why Invest in the Stock Market?
You might hear questions like, “Why stock?” Considering its risks, the result of why one ventures the stock market can be hard to answer. No matter the risks there is, there will always be a way to manage it. So the next time someone asks you “why stock?” you should confidently answer that there are no other types of asset trading who can perform as well as stock for the longest time.
With the stock market and Forex Trading, you can definitely grow your wealth in no time, but it wouldn’t be that easy. You will need to invest a couple of times before you can attain a return of investment. And in between, there will be losses which can make you feel down. But as you go along, you will understand more about its strategies and risks management.
Some people are concerned about the money that they will invest. But you can’t invest recklessly. You should only invest what you can afford to lose. Investing so much money and losing it in one go is reckless and unrealistic.
Understanding the Basics of Stocks
A stock is your share in the ownership of a company. It is issued by the company itself. Once you are a shareholder, you already have a part in the ownership of the company.
It is already common knowledge that companies need funds to grow. They need money to invest in the equipment for the company, the plants that they need for their business, or other projects that they should develop for them to obtain larger income and profits. Because of these things, they have to raise investment outside their company.
A company is presented with different options to raise capital. They can borrow funds directly from the bank, issuance of bonds, or stocks. These avenues possess different advantages and disadvantages.
As for the issuance of stock to people outside the company, they first need to be listed at an exchange. If this is the first time that the company will issue stocks to the public, they will have to undergo the initial public offering (IPO). Publicly traded will cost a lot but will eventually cover the needed capital for the company.
Two Types of Stock
There are two types of publicly traded stocks – the preferred shares and the common shares.
This type of share pays a periodic dividend which is the percentage of the entire declared par value. You won’t have voting rights for these preferred shares and the company can recall it from you after such time.
It is considered the majority of the entire volume of stock trading. This type of shares can fluctuate depending on the conditions of the financial market.