To many people, the stock market is like a fuel injected engine; they are familiar with the term, but have no idea what it means. We hear about stocks daily. The evening news reports on the Dow while the daily activity on the New York Stock Exchange takes over several pages of your newspaper. But what do all of those numbers mean? And just what is a stock? For that matter, what is the stock market? While the technicalities of these terms would require volumes in order to explain them sufficiently, the general definitions can provide a brief view and introduction into this fascinating world - and perhaps it will serve to whet your appetite for more.
By definition, a stock (also called equities, securities, corporate stock or equity) is an instrument that denotes a position of ownership in a corporation. The stock is a representation of the claim on the corporation's proportional share in its profits and assets. The number of shares that a person owns, when divided by the outstanding total number of shares, determines that person's portion of ownership in the company. For instance, if a company has 10,000 shares of outstanding stock, 500 of which the person owns, then he or she owns 5% of the company. Often the person who owns the stock has voting rights which means that the shareholder has a vote in decisions regarding the corporation that is proportional to the amount of shares that they own.
The only type of company that issues stock is a corporation. Sole proprietorships and limited partnerships do not distribute stocks. The corporations publicly trade stocks on stock markets such as the Dow and the New York Stock Exchange. The term stock market is a broad, general term to describe an organized for the trading of stocks. This is done through exchanges and OTC (over the counter). Securities that are traded OTC are not able to be traded on an exchange because they do not meet listing requirements or for some other reason.
There are several different types of securities, stocks are just one of the types in this group. Mutual funds are a collection of stocks, bonds or other securities of which investors purchase shares. The shares in mutual funds fluctuate on a daily basis and the investor is able to sell their shares at any time. A mutual fund, though, carries less of a risk than a stock because of the diversity of the stocks in the fund and the failure of one will likely be balanced by the returns on the rest of the stocks in the fund.
Trading stocks can be lucrative and there are many different opportunities for getting good returns. For instance, money market instruments carry virtually no risk while individual stocks are considered more of a high risk. There is also the Forex which is the trading of foreign currency. This is an exciting world, and there is something for just about every type of would-be investor. Explore the various options in the stock market world and you are sure to find something that will appeal to you.
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