Stock Market Basics For New Investors
March 8, 2009 by JD Pen
Filed under Stock Exchange
Companies, to raise capital, will sell small portions of their company to the public. These are called stocks. Someone who owns a stock is considered a shareholder. A shareholder has the right to voice his opinion about the companies management and share in the profits.
The company sells stock because they want to get capital, to expand the business or some other reason. An example would be when company needs to purchase new property or have extra cash. Its projected value depends on the growth and success of the company.
If a company is successful, it’s stock price will rise. Companies that have been thriving for a while will have high valued stock. These investments will be safer but may yield small returns. A newer company, because they do not have long proven success, will have cheaper stock. If the company succeeds, their stock may sky rocket in value. On the other hand, the company may fail completely and you will loose your investment.
An investor will buy and sell stock through the National Association of Securities Dealers Automated Quotation System (NASDAQ) or the New York Stock Exchange (NYSE). Companies who are on this exchange system may sell their shares on the open market. You may also purchase stocks that are not on the exchange, but we do not address that in this article.
Stocks are sold and bought in the stock exchange so an investor should have a stock broker to make all the transactions. Brokers take the instructions from the client to buy or sell certain stocks. The investor can grant the broker to trade the stock when it hits a particular price or whatever the stock market can get. The broker tries to find a suitable buyer, or seller to fulfill the investors instruction. The brokers have links with the other brokers who correspond to a different buyer or seller. Every broker will fulfill the instruction of their investor to get commission for the sale.
