As
a stock market introduction, the first thing that you need to be introduced to,
before you even think about opening an account with a stock broker, is how the stock
market works. Once you learn how it works, you will be able to figure out a way
to make it work for you; and when you do, you will have developed your own strategy
for investing in the stock market.
For
starters, a share of stock comes from the idea that you are in fact buying a share
in the stock of a company. These shares come in two forms which is that of the common
share as well as the preferred share. A company who needs more money will take their
company and divide it up in to equal shares. To get the money the companies do what
is termed “going public” in which they offer a percentage of those shares for sale
to investors.
The
first investors to purchase these shares are doing so in the primary stock market.
In most cases, the shares were already owned by the company and therefore when they
release them to the stock exchange, they are doing so on the secondary market. A
speculator, which is what you will be, will then purchase these shares with the
anticipation that there will be a demand for them in the near future.
When
the demand materializes, the value of the share increases and, if you get your timing
right, you will want to sell them right before the demand tapers off to make the
most amount of profit. The type of shares that you do this with are the most common
type and therefore they are called common shares.
On
the other hand, companies reward their owners through a share in the company’s profits.
This sharing of profits is known as a dividend, and when the company makes a certain
amount of profit, they take a portion of it and divide that equally amongst the
number of preferred shares of stock. If you own a preferred share and that particular
company declares a dividend, then you make money without ever having to sell the
shares. Any good investor will want to make sure that their portfolio has a little
of both types of shares in it.
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