How does the stock market work? What is a stock? both are logical questions to ask before deciding to put your money in the stock market. To help you understand a few important concepts about stock market, in this article we will cover:
• What is a Stock?
• Why does a Company issue a stock?
• What is the benefit of owning a stock?
• Stock Market for Dummies - How does the stock market work?
What is a Stock?
A stock represents shares of ownership in a company. Anyone who owns a part of ownership in a business is called a shareholder or a stockholder. As a shareholder, you will receive a stock certificate that shows you own a piece of a company.
To raise capital a business can borrow money from the bank or sell (issue) shares of its ownership interest (equity) to the public.
When you own a piece of a company you're called a shareholder or a stockholder. The proof of shareholder's ownership in a company is documented in a paper called a stock certificate.
If you own shares in a profitable business you can make money in two ways: by receiving dividend or by selling your stocks at higher values.
A dividend is a share of corporate profits that is paid (often in cash) yearly to a stockholder. Not all companies pay dividends. Stocks of company that pays no dividends are called growth stocks. Income stocks are stocks of company that pay dividends.
A stock market is the place where the activity of trading (buying and selling) stocks and other securities (like bonds) takes place. A stock market is orguanised in stock exchanges where the trading of stocks physically or virtually via a computer takes place. There are few major stock exchanges in the world./div>
There are three major stock exchanges in the United States:
- The New York Stock Exchange (NYSE).
- The American Stock Exchange (AMEX).
- The National Association of Securities Dealers Automated Quotation (NASDAQ) .
The other major stock exchanges are:
- London Stock Exchange (LSE) in the United Kingdom.
- Frankfurt Stock Exchange in Germany.
- Euronext which contains the stock exchanges of Paris (France), Brussels (Belgium), Milan (Italy), Lisbon (Portugal) and Amsterdam (The Netherlands).
- The NYSE and the EURONEXT have merged and is now called NYSE EURONEXT.
This concludes the basic knowledge about stock market for dummies and how does the stock market works. To learn more about investing in the stock market visit our section of "stock Market Information"