What is Stock

What is Stock? Key Things to Know for Budding Traders and Investors
December 27, 2020

What is Stock? Key Things to Know for Budding Traders and Investors

Stock is a very commonly used term in the field of trade. Not only traders and investors but many common people and business people are also aware of this market. In case you are looking for a thorough guide about what is stock and its importance in the market, you have come to the right place. In this article, I will guide you about all the relevant details you will need if you want to trade stock.

What is Stock?

Introduction to Stock

The
stock can be defined as a security that provides ownership of a fraction of a
company. Buying a stock gives entitlement to the owner or buyer of the stock to
a proportion of the assets and profit derived by the corporation depending upon
the investment the buyer has done in buying the stock. Stocks are bought or
sold in the units of shares.

What is Stock Exchange Market?

The
marketplaces where stocks are exchanged or bought and sold are called Stock
Exchange market.

In
this market stock the trading takes place with the help of financial
instruments such as shares, mutual funds, currencies, or bonds. Like other
markets, this one also responds to the law of supply and demand. These places
could be physical or virtual that work under a pre-defined set of rules and
regulations. The most stock exchange activity in the US takes place through the
two listed stock exchanges, the Nasdaq and the New York Stock Exchange.

Why Do the Companies Sell Their Shares?

Corporations
need a massive amount of investment or capital to grow at a frenetic pace.
Giving a practical shape to an emerging idea needs many resources for its
implementation. Setting up office, building factories, hiring employees, buying
space, purchasing equipment and other raw materials required for the production
need a significant amount of investment. These activities are financed either
by selling shares or with the help of debt. Companies prefer selling shares
because borrowing money can later be problematic for a startup. Companies use
the stock market to finance their various activities by selling shares of their
capital. It gives investors the opportunity to own a portion of the capital of
a company. The stock market makes it possible to determine the valuation of
companies.

What
Are the Benefits of Owning Stock?

If you invest in buying the stocks of a
company you get many benefits. Some potential benefits are listed below.

You Get A Share in the Profit and Dividends

The
most important reason or advantage why investors look towards stocks is that
buying shares in a corporation entitles the shareholder or the stock owner to
the profits or capital gains. Hence, it becomes a source of earning for the
stockholder that is paid in the form of pre decided dividends. The shareholders
also enjoy the benefit of company’s stock price appreciation.

You Can Claim Company’s Assets

If
you are a stock holder of a company you can claim the assets of that company.
However, this benefit is restricted only in the situation when the company is
in the phase of liquidation. In this scenario, when all the assets of the
company are assessed and the creditors are paid back, then the stock holders
can claim the leftover. It sometimes brings the stock holders at stake because
if all the assets are consumed in paying off the debts then shareholders get
nothing.

You Get the Power to Elect the Management

Stock
ownership gives you another benefit. You can now vote for electing the
management of the corporation if you are not happy with the performance of the
management. You are invited to attend the annual meetings of the companies
where all the reports of overall company’s performance and output is presented.
You get a chance to know and understand the future plans of the corporation
including their operational and managerial policies.

The
place of the stock market in the economy:

The
stock market in the economy helps attract international capital flows. This
type of investment provides an essential favorable economic environment.
Through the broker, one can create investment opportunities capable of arousing
the interest of fund managers as well as all financial institutions. To develop
confidence among investors and to attract international capital flows useful
for the development of the economic activity of society, certain essential
conditions must be fulfilled. These conditions include, among other things, the
search for efficient financial systems in the host countries, the establishment
of modern and valid infrastructures, the presence of solid financial
institutions and liberal monetary policies, in particular concerning the
movement of capital.



 

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