What is Stock?
Stocks and Shares are terms that are often used interchangeably. A
stock represents a unit share of ownership in a company. It may or may not have vote
rights or have special rights attached to them. Stocks are also referred to as
equity shares or simply shares. A stock certificate can be a piece of paper that
gives the investor the right of ownership. Stocks can also be held
electronically in Demat accounts.
Companies which want to
grow, see equity financing as a means of acquiring large amount of funds for
growth. These companies need to be registered if they want to sell stocks to
the public. Such companies can decide how many shares they want to issue and at
what price and get approval form the relevant Government agencies for issue of
such stocks.
Stocks are purchased by
individual share holders who become entitled to ownership in the company in
proportion of the shares they hold in the company. The profits of the company
are divided among the share holders in form of dividends. Companies sometimes
issue bonus shares to the stock holders in proportion of the shares they hold.
These bonus shares can also be traded in the market.
The stocks of the company
that are owned by the public are listed in the stock exchange. Stock exchanges
are entities that specialize in bringing buyers and sellers of stock together
for trading and list the prices of the stocks. There are national stock
exchanges and regional stock exchanges in every country. The prices of stock at
the start of the day or close of the day in a stock exchange are available to
the public in the financial pages of the newspaper or on television channels
devoted to the subject.
A stock market is a private
or public market where stocks are traded at an agreed price.
The prices of stocks are determined by
market forces and the performance of the companies to whom the stocks relate to.
Stock markets and stock trading are very popular with investors who are not risk
averse, as it brings with it visions of untold wealth.
Retail investors are
investors who invest in stocks and share occasionally. They are risk conscious
investors. There are plenty of news channels, newspapers and investment
advisers who are willing to provide such investors with information and
assistance. Correct decision making is crucial to profitable investment.
When the share prices dip
suddenly, the stock market is said to have crashed. Stock market crashes can
result in huge losses to investors as the value of the shares they hold dips.
Small investors are often the worst hit in stock market crashes.
Stock markets that show a
rising trend are said to be bullish and markets which show a falling trend are
said to be bearish.
The health or
ill health of the economy is often judged by the stock market indexes and the
response of investors to stock market trends. Recessions and other economic
factors have their impact on the stock markets round the world. In the global
economy of today, recession in one part of the world seems to have an impact on
stock markets in another part of the world.
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