When wanting to make your money work for you there are two options at hand, you can leave it in the bank or you can venture into the stock market. The latter option is becoming increasingly popular in the age of digital and web-based trading. At first the stock market will come across as a daunting place filled with horror stories of lost fortunes. However, when approached correctly and armed with the right information, the stock market can be a place where fortunes are made. This guide looks at the four most-asked questions about the stock market and what potential investors must know before making their first trade.
What Are Stocks?
A stock or share is an investment with a company that constitutes ownership on what is usually a very small level. Technically, when you own a share you own a part of every aspect of the company, profits (in the form of dividends) included. The aforementioned describes what is a basic stock, however that isn’t the where the stock market begins and ends. An exchange-traded fund (ETF) is an alternative way to acquire shares in larger amounts. Investors will buy a whole selection of shares of different companies that are bundled together via a single transaction.
Why Do Companies Issue Stocks?
The core reason as to why a company issues an initial public offering (IPO) varies, but on the surface it is usually to raise funds. When a company has exhausted all borrowing options, they can raise funs by selling stocks on the stock market. On the other side, when a company is a successful they may wish to sell stock on the stock market to take their company to the next level.
What Are The Risks?
One way to look at being a shareholder is much like as if you were a small business owner. If a company is successful you will prosper financially, but if it isn’t losses are inevitable and the original investment is placed at risk. As you would simply be a shareholder, you will never be held personally accountable for a company’s mistakes, like not being able to cover debt. However, the money you invest via the stock market is always at risk should something untoward occur.
How Are Stock Prices Determined?
During your early days in the stock market, you will get to see first hand how volatile the market can be and how prices can move fast. The price you see will be what investors feel a share in that company is worth at that very moment. Stock market prices are influenced largely by the company’s earnings and predictions for prosperity, or lack there of in some cases. The current economic climate usually has a big hand to play in that factor too. Supply and demand is also another element, so if more people want to buy a certain stock its price will rise, yet if a stock is in a position in which people can’t get rid of it quick enough the price will plummet.
Risk warning: Spreadbetting, CFD trading and Forex are leveraged. This means they can result in losses exceeding your original deposit. Ensure you understand the risks, seek independent financial advice if necessary. The value of shares and the income from them may go down as well as up. Nothing on this website constitutes a solicitation or recommendation to enter into any security or investment.