The stock market is a public exchange between buyers and sellers. Companies issue stocks, which are part of a company’s equity, and people buy shares of that stock. A dividend is a piece of that company. Buyers can get one or more shares of a stock, depending on how much money they are willing to invest.
The purpose of buying and selling stocks is to avoid inflation, which is when the price of a certain economy rises over time, reducing the value of money. A person can buy shares at one point in time, and if the company does well in the future, the shares can be sold at a higher price than initially purchased.
Participating in the stock market can be a gamble. Here are some terms to know how to navigate the stock market as a beginner.
Companies want buyers to purchase shares of their stocks, to increase their profits. To inform potential buyers about their shares, companies prepare an annual report to be presented to shareholders. This report contains information about the performance of the shares throughout the previous year, in an attempt to persuade shareholders to buy more.
Buying a share of stock is not the only thing a buyer can do. Borrowing is also an option. When you borrow a share from a broker, who is essentially a middleman between the buying and selling process, you can sell the share at a higher price. Then you can return the share and keep the profits made. This is called leverage, and it can be a risky business.
Speaking of borrowing, shares can also be borrowed from other buyers. The share is sold before it has a chance to lose its value, hence the term “short-selling.” The profit obtained from this exchange can be used to buy the share back when it costs less than before, allowing the share to be returned to the original person it was borrowed from. This results in keeping the difference between the profits made from selling the share.
To describe the extent to which a stock’s price rises and falls, the term ‘volatility’ is used. Highly volatile stocks have unstable price changes, even throughout just a day. The stock price can skyrocket unsuspectingly, or it can take a dive. It can be difficult to estimate a volatile stock’s trajectory, which is why buying a shared form such stocks are high-risk. However, a stock like this can be extremely rewarding during its high points.
About The Author
Kyle Dennis is an Entrepreneur, Professional Trader and Founder of the well-known trading program, Biotech Breakouts. He also works as a trader and educator with Raging Bull Trading as an educator for new and experienced traders looking to master the stock market.