Did you know that the stock market is more than just buying and selling stocks? It’s a complex system with a lot of exciting facts and quirks. Here are ten surprising things about stocks that every trader should know.
What stocks are and how they work
A stock is a share in the ownership of a company. When you buy a stock, you become a part-owner of the company. As a shareholder, you have certain rights, including the right to vote on corporate matters and to receive dividends.
The stock market is where stocks are traded
The stock market is not just one place – it’s a network of exchanges and computer systems connecting buyers and sellers worldwide. The two largest stock markets in the United States are the New York Stock Exchange (NYSE) and the Nasdaq.
The history of stocks and how they’ve evolved over time
The first recorded sale of shares in a company occurred in 1602 when the Dutch East India Company sold shares to the public to raise money for its voyages to Asia.
Since then, stocks have evolved and become essential to the global economy. Today, more than 28,000 listed companies worldwide with a total market capitalisation of over $80 trillion.
How to buy stocks and what to look for when investing
If you’re interested in buying stocks, there are a few things you need to know. First, you’ll need to open a brokerage account. A brokerage account is an account that allows you to buy and sell securities.
Once you have a brokerage account, you can start buying stocks. When choosing stocks to buy, it’s essential to do your research and understand the company before investing.
What are the different types of stocks?
The two main types of stocks are common stock and preferred stock.
Common stock is the most common type of stock and gives shareholders voting rights and the right to receive dividends. Preferred stock doesn’t have voting rights, but it does have priority when it comes to receiving dividends and getting paid if the company is liquidated.
There are also different classifications of stocks based on their size, growth potential, and other factors. These include small-cap stocks, mid-cap stocks, and large-cap stocks.
What are dividends, and how do they work?
Dividends are payments that companies make to shareholders out of their profits. Dividends are usually paid quarterly, but some companies pay them monthly or annually. The dividend payment amount is determined by the company’s board of directors and is based on the company’s earnings and cash flow. Typically, the higher the company’s earnings, the higher the dividend payment will be.
However, not all companies pay out dividends. Many technology companies, for example Apple and Meta, do not, and they prefer to funnel their earnings back into themselves to further develop their products and research.
The benefits of owning stocks
There are several benefits to owning stocks. One benefit is that you can earn dividends, which can be a steady way to make some money on the side.
Another benefit of owning stocks is participating in the company’s growth. When a company does well, its stock price usually goes up. It means that you can make money by buying stocks and holding them for the long term.
Another benefit of owning stocks is that you have the potential to earn a lot of money in a short period. It is because the price of a stock can go up or down very quickly, and you can make a profit by buying low and selling high.
What are the risks of owning stocks?
The main risk of owning stocks is that the price can go down and up, which means you could lose money if you invest in the wrong company or buy at the wrong time.
Another risk is that a company might not pay dividends. A company might not have enough cash to pay dividends or decide to use its profits to reinvest in the business instead of paying shareholders.
How to diversify your portfolio with stocks
One way to diversify your portfolio is to invest in different stocks. For example, you could invest in large-cap, small-cap, and international stocks. You can also diversify your portfolio by investing in different industries. For example, you could invest in healthcare, technology, and financial stocks.
How to research individual stocks and make informed investment decisions
There are a few things you should research before you buy a stock.
The first thing you should do is read the company’s financial statements, which will give you an idea of its profitability and financial health.
The second thing you should do is research the company’s competitive advantages. Competitive advantage gives a company an edge over its competitors. For example, a competitive advantage could be a low-cost production process, a strong brand, or proprietary technology.