Key TAKEAWAYS
Key TAKEAWAYS
Types of stocks
There are basically two types of stocks:
Common Stocks: Common stockholders are entitled to vote at the shareholder meeting and are eligible to receive the dividends that are paid out by the corporations. Common stocks are ownership of equity shares and provide higher rates of return in a long run. However, they are the last ones to get paid when the company is liquidated.
Preferred stocks: Preferred stockholder have a higher right to the company dividends but they don’t have a say in the shareholders’ meetings. In case of liquidation, preferred shareholders are paid before common stockholders.
A company can issue new shares or buy back the existing ones as per the requirement. In case of issuing new shares, dilution of share occurs and price of the share falls down. However, in case of buy-back, shareholders benefit from the value appreciation.
What is a stock?
A stock represents the ownership of a portion of any corporation. Depending on the amount of stocks that an investor owns, they are entitled to the same proportion of profit. Stocks are measured in terms of ‘shares’.
Generally, stocks are sold and bought in the stock exchanges. However, stocks can be sold privately as well. To ensure that the transactions are not vulnerable to frauds, they need to conform to government regulations.
Stock: Basics
Stockholders & Ownership
Stockholders hold the shares of any company and a corporation is entitled to the assets held by a company. It means a shareholder can’t do anything with a company’s assets like its furniture, space etc. They can’t take them as they are the part of the corporations assets instead they have a vote in the shareholders’ meetings. They can provide direction to a company with their strong voting power if they own most of the shares of a company.
For shareholders who do not own a major portion of stocks, they are benefited from the dividends that are paid out by the company. However, most of the stocks do not pay dividends but the net profit is reinvested in the company which increases the net value of a stock. And that’s how traders get benefited by owning the stocks.
Difference between Stocks & Bonds
A company issue stocks to create capital for undertaking new projects and growing the business. Stocks are issued in terms of shares and entitle shareholders a share in the profits and voting power according to the type of share.
Bonds are loans taken by a company by an individual. Investing in bonds of a company entitles an investor to get their payments out on a specific date of maturity with a certain amount of interest but they don’t get a share on the profits. Bond holders are the ones who get paid first when the company is liquidated unlike shareholders who are the last ones to get paid.
Both stocks and bonds can be bought from the primary market i.e. directly from the company and can be sold in the secondary market. It is generally in the secondary market where traders are activated and create profits from the stock & bond trades. However, selling a bond in secondary market is subjected to market risks and doesn’t ensure the exact amount that is promised to be paid out on maturity but market fluctuations of the bonds can be exploited to take out additional profit from the bonds.
CONCLUSION
Shares represent the stocks of a corporation and investing in stocks entitles the investor to a part of company’ profits and in certain cases allows them to vote in the company’s decisions. Stockholders don’t hold any liability in case company fails. Stock trading is exercised in secondary markets which allow day traders to create a profit due to fluctuations in the price of a share throughout the day.
Day trading involves buying and selling a ‘financial instrument’ within a single day. Various types of instruments are available in the market for traders to make use of. These instruments are capable of creating wealth for a trader if used correctly.
A stock represents the ownership of a portion of any corporation. Depending on the amount of stocks that an investor owns, they are entitled to the same proportion of profit. Stocks are measured in terms of ‘shares’.
Futures are contracts that necessitate two parties to make a transaction over a certain asset at a particular time and date. The seller and buyer must sell and buy the asset at the set price, irrespective of the current market price at the expiration of the contract.
Currencies are traded in pairs, say USD/INR i.e. US dollar and Indian Rupee. For, example if the associated price with the pair is 74.38 which means it’s going to take 74.38 rupees to buy 1 US dollar. Traders speculate on the price movement of the currency and trade currencies to create profit.
Options trading can be compared with betting on the horses at the racetrack. So, the chances of either winning all the profit or losing it all are one of the key features of futures trading.
