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What you need to know about stocks
What are stocks?
Stocks are traded company shares. When you buy shares in a company, you become a co-owner of that company. The proportion of your co-ownership is determined by the number of shares you own in relation to the total number of shares available.
Shares are a way for companies to raise capital and for investors to potentially make profits through dividends or capital appreciation.
How do stocks work?
Stocks are bought and sold on stock exchanges, such as the New York Stock Exchange (NYSE) or the NASDAQ. The price of a stock fluctuates throughout the trading day based on supply and demand. If more people want to buy a stock (demand) than sell it (supply), then the price moves up. Conversely, if more people want to sell a stock than buy it, the price falls. Investors make money by buying stocks at a low price and selling them at a higher price, or by receiving dividends distributed by the company.
What are the different types of stocks?
The main types of stocks are common stocks and preferred stocks. Common stockholders have voting rights in corporate decisions but are last to receive dividends or assets during liquidation. Preferred stockholders usually don't have voting rights but receive dividend payments before common stockholders and have priority over common stockholders if the company goes bankrupt.
Why do companies issue stocks?
Companies issue stocks to raise capital without incurring debt. This capital can be used for various purposes, including expanding business operations, paying off debt, or launching new products. By selling shares, a company can fund its projects without taking out loans, thus avoiding interest payments and debt obligations.
What Is a stock market index?
A stock market index measures the performance of a defined part of a stock market. It is calculated from the prices of the shares contained in the index. As a rule, it is a weighted average. Popular indices are the S&P 500, which tracks the performance of the 500 largest companies listed on US stock exchanges, and the DAX, which is made up of the 40 largest listed companies based in Germany.
What are the risks of investing in stocks?
Investing in stocks involves risks, including the possibility of losing the invested capital. Stock prices can be volatile, influenced by factors like economic conditions, market sentiment, and company performance. Other risks include market risk, liquidity risk, and interest rate risk. It's important for investors to research thoroughly and consider diversifying their investment portfolio to mitigate risks.
How can i start investing in stocks?
To start investing in stocks, you need to: Educate yourself about the stock market and investment strategies. Set financial goals and determine your risk tolerance. Open a brokerage account with a reputable broker. Start researching stocks or consider index funds for a diversified investment. Invest money that you can afford to lose, and consider starting with small amounts.