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Basics Of The Stock Market

The stock market for beginners can be very daunting and complicated. But did you know, that of all the avenues of investment, the stock market is easily the oldest? That does not mean, however, you should not know the basics before you put your money into it. Knowing the fundamentals of the stock market can, and will most likely mean success or failure. Thus, if you want to make money in the stock market, you better learn the basics!

To start, let's discuss what a stock truly is. All that a stock really is, is a claim to a piece of ownership in a company. When a company needs to get capital, it will market off shares of itself to outside investors. When you purchase a share, you buy yourself a right to a share of the profits. That means if the company makes money, you get a piece. If it loses money, your invested money becomes smaller. Anytime you purchase more stock, you increase the amount of your share in that company's earnings. Be they positive or negative.

Just because you purchase a share or two does not mean you will be consulted for daily businesses activities of the company. But, your share does also count as a vote for who should be consulted. It is the shareholders that select the board of directors, who are responsible for all the company's activities.

Next, let's look at the two types of stocks you can purchase. Common stock is the most prevalent and is typically what is traded most of the time. Anytime you hear someone talking about buying 'stock', they are probably talking about having purchased common stock. Common stock is nothing more than a share of a company, and does not entitle the holder to any further benefits.

The other kind of stock you can purchase is called 'preferred stock'. Preferred stock is a company share that gives the holder a little more benefit than the common stock. A preferred stockholder usually doesn't get to vote, but will most likely get a dividend for the life of the company. Where common stock provides a less common dividend, preferred stock will give a consistent income. Also, if the company gets liquidated, the preferred stockholders see their money returned first.

In other words, a preferred stockholder will get their investment returned as a priority over common stockholders, while earning a considerable dividend.

Now, what makes a stock price change? Supply and demand. It's that simple. When a lot of people want a stock, the demand is high and the supply becomes smaller as the demand is satiated. Thus the price goes up.

When stockholders want to rid themselves of their shares and there isn't enough buyers to make them happy, they will lower the asking price to try and garner interest. And this is how the prices go down.

I hope you now feel more confident about the stock market and will continue your learning and eventually use the stock market as a source for wealth building.

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Author is a writer for www.korpritzombie.com - a joint blog about personal investing and development of passive income.

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