Stock Basics Explained
|07-26-2005, 11:02 PM||#1|
Stock Basics Explained
I've compiled this to help launch this section with good information and to help newcomers to investing. By no means is this exhaustive in it's information but this should give people a general idea. It may be useful as a sticky. Enjoy!
Q. What is a Stock?
A. A stock is (1) unit of ownership in a company. Own a share of a company’s stock, you own a part of the company.
Most stock bought on the market is "common" stock. This stock gives you the right to vote on certain important matters of the company.If the company distributes profits, stockholders normally get them in dividends.
A benefit of stock ownership is limited liability. That means If the company loses a lawsuit and must pay some serious bankroll, all that can happen is your stock becomes worthless. The collection agency or anybody else can’t come after you.
There are 2 kinds of stock:
* Common stock
* Preferred stock
Most stocks held by people is common stock. Common stock is the majority of stock held by the public. It has voting rights, and the right to receive dividends. When you hear or read about “stocks” being up or down, in the news or on TV they are always talking about common stock.
Preferred stock has fewer rights than common stock, except in dividends. Companies that issue preferred stocks usually pay consistent dividends and preferred stock has first rights to dividends.
Investors break the market down into sectors by company business. These sectors make is possible to compare how a stock is doing relative to its peers.
Dow, S&P 500, and Nasdaq Composite, are useful tools if you understand them.
Dividends are a way companies goves a portion of their profits to stockholders/shareholders.
Different Share Types
Different types of shares of stock are out there. Authorized, restricted, float, outstanding and treasury shares all have different attributes. Be informed make smart decisions.
Stock Trading Basics
Trade = Buy or Sell
To “trade” means to buy and sell in the financial market/ the stock market.
Two Basic Methods
There are two basic ways exchanges trade stocks
* On the exchange floor
Trading on the floor of the New York Stock Exchange (the NYSE)
A step-by-step of a simple trade.
1. You tell your broker to buy 100 shares of Boxden at market. (At market means at the current price available when you make/execute the transaction)
2. The broker’s order department sends the order to their floor on the exchange.
3. One the floor a clerk alerts the firm’s floor traders who finds another floor trader willing to sell 100 shares of Boxden.
4. The 2 agree on price and complete the transaction. The broker calls you back with the final price. After a few days you will receive a confirmation notice.
Remember this is a simple example.
Simply out electronic markets use computers instead of people. They match buyers and sellers much faster than the old school way. Individual investors like us can almost get instant confirmations on trades.
We still need brokers to handle trades. There are many online go to JD Powers or another comparison guide and check them out I did and I'm very pleased. The brokers online and off both charge a fee for the transaction. Usually the fee is small and is per transaction. This means whether you but 100 shares or 1,000 you still pay the same price.
Not every place is the same so who ever you pick get there fees. Also when you sign up with a brokerage you have to sign all these forms to verify you won't steal cheat and or lie and hold the brokerage accountable for delays or pricing differences they can't control.
Get your hustle on.
Last edited by Camay; 07-26-2005 at 11:20 PM..