What Are Stocks? Everything You Need To Know

A s of 2021, throughout the entire world, there are exactly nineteen stock exchanges that have a market capitalization that extends beyond $1 trillion. But, what are stocks, and how does the stock exchange work? How do these arbitrary numbers get assigned values? Who do these numbers belong to?

Don't worry, we've got you covered. If you want to know all the basics there are to know about stocks, read on ahead.

What Are Stocks?

Well, say you have a company. What can you do besides fundraising to raise money for your company? You can sell little bits and pieces of your company. Stocks are a share in the ownership of a company.

Ordinary individuals can invest in several of the biggest and most successful firms through stocks. Stocks are a tool for businesses to generate money to support development, new products, as well as other endeavors.

Why Should You Own Stocks?

If you would like a stable option to invest in, stocks are a viable contender. It's not that they have consistent growth, it's just that if you want a long-term investment, you can be sure that stocks will be your friend.

How Do People Earn Through Stocks?

There are two main ways to earn by owning stocks. First, and the obvious one, the price of the stock goes up. This is called appreciation. For example, if you buy some stocks from a company for $5 each, say you buy 10 of them, that's $50 worth of stock. If the price of the stock goes up from $5 to 7, you will then have $70 worth of stock. That's a $20 profit. If you sell your stock while the price is up at $7 each, you will be able to earn $20 more than you had invested in the first place. This is called the stock exchange.

The stock market fluctuates a lot. The general rule of thumb is that you should buy stocks when prices are low and sell them when the price is high. People who invest in the stock market learn the trends for each company before deciding to invest. It is important to know whether the business you're buying shares in is on a downward slope or an upward slope. If you invest in a business that is predicted to go bankrupt, you will lose money.

The second way to earn through stocks is that many stocks pay dividends. Not all stocks do that, but most companies sometimes pay a little out of their revenue to the shareholders. This amount is often paid quarterly, but sometimes bi-annually and annually.

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How Do Stocks Work?

So now that you know what stocks are and how they can potentially benefit you or how they benefit pre-existing stock owners, you may be wondering how the appreciation and depreciation of value happens. What exactly is at play here?

Well, when a company decides to sell stocks, it has a certain value. Say the company has a value of $100 and has 50 stocks, thus placing each stock at $2. When the stock is bought, the company gets money, and then they use that money to invest into their business. If their investment bears fruit, they get profit, thereby increasing the value of the company. If the value of the company goes from $100 to $400, that would then place each stock at $8, the value of which was originally $2.

However, it’s not all shiny and glittery. Sometimes companies have to bear losses, and if the loss is greater than their profit, the value of the company decreases. For example, if after bearing a certain loss (for example a failed product) the value of the company goes from $400 to $200, each stock value will then become $4, compared to the previous $8.

However, most of the time, if you buy stock, you’ll likely be buying it from another investor instead of buying it from the company director. Most companies have had stocks in circulation for a couple of years, and thus all their stocks are sold to investors. The same stock that you buy was bought from another investor by the person you bought it from. That’s how it is for most old companies that are now big conglomerates.

So, if you’ve ever stopped and wondered, what are stocks? Now you know. And if you’re looking to invest and want a good return, do your due research on the stock market and go for it!

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