When you’re buying shares, you are basically purchasing a stake in a certain company that issues them. As an owner of these shares you have certain rights, for example the investor is entitled to profits from the company, provided the company will succeed in making them. Investors can also sell their share of dividends, or buy mutual fund shares.
How the Stock Market Works
The stock market works like any other market, but in this situation the “products” you are buying into are actual ownership dividends. These are called stocks. Stocks are traded on major stock exchanges, such as the famous New York Stock Exchange and the National Association of Securities Dealers (NASDAQ) in the USA.
– Stock prices can vary a lot, depending on what their supply and demands are. Thus, prices are likely to experience growth when the demand is high, and accordingly, when more people are willing to sell than to buy, there’s an excess of supply, and the prices will fall.
– It is important to note that a stock’s price does not necessarily reflect the company’s value. It simply represents the perceived value of the stock by the communities of investors, their general opinion on the company and its directions. Thus, we can conclude that prices, especially on short term, are mostly driven through emotions, rather than factual reasoning.
– As an investor, your end-goal is to purchase stocks in companies which will eventually grow. This means that if the company you’ve invested to has success, more people will want to invest, and therefore the prices will rise. At this point, you will be able to sell your previously acquired stocks and generate profits.
– For example, imagine you buy 100 shares at $10 per stock. This is an investment of $1000. Two years later, the share price rose to $20. This means that your investment has become worth $2000. If you were to sell your shares at this point, you will receive a profit of $1000 before any taxes or fees.
Stock Market – Glossary of terms related to trading stocks
Knowing these terms will help you know the types of buy and sell orders that decide what calls you want to take with your brokerage company. These are extremely important, as they allow you to set certain conditions on when to buy or sell stocks automatically.
– The asking price or offer when you wish to buy any stock represents the lowest price you can buy a certain share for, at a given time. If you wanted to buy stocks in a company, and the current asking price was $40 you would pay $40 per share.
– A bid is the highest available price you can find when you want to sell a stock. If you own shares in a company and want to sell it instantly, you will get the bid price. If the value of the stock is $40, you will get $ 40 for each share.
– A market order is the request to buy a certain stock immediately. Therefore, if you are buying, you will receive the shares for the current ask price, and accordingly, if you’re selling, you will get the current bid price. However, with market orders, you should always keep in mind that even though you’re getting the best available price at that time, it might not be the price you’re aiming for. That’s why it is extremely important to be very cautious with market orders.
Stay tuned for more educational articles about buying and investing in stocks.
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