If we look at the investment world, then there are many types of assets that are there to invest and to create wealth. If we look closely then the stocks are the best. Stocks are investment mediums that allow an individual to own a part of a public company. Let us learn more about stocks and how they work and help earn money from your investment.
What Are Stocks?
Stocks enable you to acquire ownership of a publicly-traded company in parts. When you buy stocks of that company you automatically become part-owner of the corporate. If a company for example owns 100,000 shares and you buy 2,000 of them, you own 2% of the company. By owning shares or stocks of a corporate entity you become eligible to share the profits earned by the company besides getting voting rights reserved for shareholders. Stocks are alternatively known as Equity and Shares.
How Stocks Work?
- Corporate companies can sell their stocks in order to generate funds for promoting business, launch new products, or simply pay off accumulated debts. When a company offers or sells its shares for the first time to the public it is called Initial Public Offering or IPO. After the initial offering of stocks, buyers or stockholders can trade the shares in the stock market where prices are determined by the oscillation of supply and demand.
- Prices of a particular share will drop if more people are selling it and prices will rise if a particular share is bought by more buyers. if demand for a particular company’s share is more in the market its price will automatically rise, if there is no demand, then the price of shares will fall. Determination of buying or selling a stock depends on the performance of the company and its profit percentage. If stock traders think that the company’s profit share of the market is high, then the bid for the stock will rise.
After Buyer and Seller and also after Fundamentals, there are some other aspects that keep the stock price up to and down. Some good and bad news even make able to create good demand in general low-quality stock. And sometimes it also happens, that all those stocks are not even owned by promoters. Some third-party companies are acquired. And those they quote a high price. And new investors and traders get caught up in its price movement and short-term returns.
- One-way shareholder earns from their investment is by selling the share they own at a higher price than what they originally paid to buy them. If the company is not performing well and falling in the stock market the shareholder stands to lose part or all of his investment when they sell it in the market.
How do share or stockholders earn their profits?
- One way they earn profits is by selling the shares they own at a higher price. In the stock market language, Capital Gains are profits made from selling stocks.
- Another way the investor earns from shares is through dividends offered by the company earnings. The dividend is the reward that companies offer to shareholders in order to incentivize them. Stockholders are the actual owners of the company and the system of paying dividends suits companies that are doing well but not growing at a fast rate. But after a few years stock prices grow very fast, it happens by the power of compounding. To create wealth in the stock market investors do hard work on their discipline in them.
- Future contact is the third option a shareholder can earn a profit, but it is a very risky option. Is it normal to lose money in the stock market ? The value of the future is derived from the underlying assets like commodities and stocks. Future gives you the option of buying or selling a stock future contract at an assured price within an agreed-upon date. Here you will get to create contact with a limited time period to sell first and then buy. Which gives you a chance to make a lot of money even during the fall of the market.
- Derivatives are also a great option to make money in the stock market. There are two types of derivatives in the stock market. One is the Call option another is the Put option. You can also trade with a ‘Call Option’ which is a right and allows you to buy stocks and other assets at the strike price. You buy the asset’s strick price when the price of the stock is going to up in the market and then sell that stick when the underlying asset goes up. A ‘Put Option ‘offers you the right to buy a strick price which will increase when the underlying assets go up. This helps you earn money when the stock or underlying asset price goes down in the market.
A financial advisor tells you how and when to buy a stock or futures and options which will help you to care profit and wealth as well. That is why before investing or trading in any asset, you should not forget to consult the experts of the industry.