Common stocks are the shares of a company, which large businesses and corporate issue to raise funds. Sometimes some partnerships or trusts can also offer their shares, but only in special circumstances. Initially the company's shares are held by a group of individuals - but when some business is going through significant growth and it needs substantial capital, it can offer its shares to the general public and investors. Companies are said to be "going public" when they list themselves on some stock exchange.
Where to buy these common stocks:
Initial public offerings take place in primary markets. Original issuers will offer these stocks as financial claims to the general public; in return for cash they receive from these investors. Sold shares are called "issued and outstanding". Sometimes the company will purchase some of them back; these shares are kept in treasury and recorded as "issued but not outstanding". After the IPO (Initial Public Offering) the shares (or stocks) are traded (repeatedly sold and purchased) in secondary markets. These secondary markets are normally known as stock exchange, for example The American stock exchange or New York stock exchange. Difference between primary and secondary markets is that the original issuer is not going to get any cash from the sales of stock in secondary markets. Stock prices are quite high on the first day of initial public offering and normally big players are involved. Normally companies hire investment bankers to manage the initial offerings process. All companies are allowed to offer only a limited number of shares, which is mentioned in the articles of incorporation (known as authorized shared capital).
What kind of rights do you get with these stocks?
As stated above, common stocks are financial claims. When you purchase and hold a share, you become one of the (many) owners of that company. Stockholders are entitled to vote for the appointment of company's directors and some other major decisions. One share means eligibility to cast one vote. Voting (through majority voting system or cumulative voting system) is needed for various decisions. Stockholders are also entitled to receive dividends when the board of directors decides to pay. Corporations can pay these dividends in cash or they can simply offer more shares to their stockholders. You can also earn by reselling these stocks for higher prices at stock exchange. At the liability side, the stockholders have "limited liability" i.e. the amount of shares they own is the most they can lose if the company gets into trouble or goes bankrupt.
William King is the director of Wholesale Trade Suppliers & Distributors and Australian Wholesalers & Suppliers He has 18 years of experience in the marketing and trading industries and has been helping retailers and startups with their product sourcing, promotion, marketing and supply chain requirements
Sunday, November 8, 2009
A Guide to Common Stock Market Terms
The stock market can be a great investment tool, but many people find themselves unsure of whether or not to invest in the market because they are unfamiliar with some of the more common terms associated with market trading. If you are one of these people, don't despair; below you'll find several of the more common terms associated with the stock market defined so as to help you make sense of the investment news that you hear.
Stocks
Stocks are obviously one of the most commonly traded items in the stock market... they are the publicly sold and traded shares of companies. Each share of a stock is a portion of ownership in the company that issued the stock, and the stockholder is usually entitled to vote in stockholder meetings. Stockholders are also often given advance notice of upcoming splits, mergers, and the release of new stock shares.
Bonds
Bonds are similar to stocks, but are more often issued by governments than by individual companies. Bonds are issued with a specific date set at which they reach maturity, after which point they are cashed out and their current value is paid to the bond holder. The longer a bond holder owns a bond before maturity, the more money they have accrued in the bond and the more they get upon maturity.
Dividends
Dividends are additional payments that are made to stockholders after a particularly profitable quarter. Many people automatically reinvest their dividends, getting more shares of stock equal to the amount of the dividend that was paid.
Futures
Futures are traded along the same lines as stocks, but are purchased against the future cost of commodities. When the futures mature, money is made if the actual price of the commodities is higher than that which was paid for the futures and money is lost if the price is lower than that which was paid.
Index Trading
Groups of stocks based upon commodities or sectors of the market can be purchased and traded as an index; common indices include the diamond market, the gold market, technology sectors, healthcare, and other such groupings.
Trading on Margin
Trading on margin is similar to making stock trades with borrowed money... you can purchase the stock shares for a portion of the actual price, with the remainder due at a later date or upon sale of the stock. The broker which places the order must have your margin portion of the cost before placing the order, which is typically 50% of the cost of the stock.
Bull or Bear Market
Bull markets and bear markets are terms used to describe trends in the stock market. A bull market is one in which stocks continue to rise over an extended period of time, and is considered to be an optimistic market. A bear market is one in which stocks fall in price over an extended period of time, and is considered to be a pessimistic market.
Splits
Splits are a way that companies reduce the value of their individual stocks without reducing the value of their stocks as a whole. The most common type of split is a two-for-one split, in which each share of stock is divided into two shares... this doubles the total amount of shares, though the total amount invested remains the same and each individual share is worth one half of its previous value. Stockholders end up owning twice as many shares after a two-for-one split, though the total amount that they have invested remains the same.
Bill Stone writes for Direct Online Loans who help homeowners find the best available loans via the http://www.directonlineloans.co.uk website.
Stocks
Stocks are obviously one of the most commonly traded items in the stock market... they are the publicly sold and traded shares of companies. Each share of a stock is a portion of ownership in the company that issued the stock, and the stockholder is usually entitled to vote in stockholder meetings. Stockholders are also often given advance notice of upcoming splits, mergers, and the release of new stock shares.
Bonds
Bonds are similar to stocks, but are more often issued by governments than by individual companies. Bonds are issued with a specific date set at which they reach maturity, after which point they are cashed out and their current value is paid to the bond holder. The longer a bond holder owns a bond before maturity, the more money they have accrued in the bond and the more they get upon maturity.
Dividends
Dividends are additional payments that are made to stockholders after a particularly profitable quarter. Many people automatically reinvest their dividends, getting more shares of stock equal to the amount of the dividend that was paid.
Futures
Futures are traded along the same lines as stocks, but are purchased against the future cost of commodities. When the futures mature, money is made if the actual price of the commodities is higher than that which was paid for the futures and money is lost if the price is lower than that which was paid.
Index Trading
Groups of stocks based upon commodities or sectors of the market can be purchased and traded as an index; common indices include the diamond market, the gold market, technology sectors, healthcare, and other such groupings.
Trading on Margin
Trading on margin is similar to making stock trades with borrowed money... you can purchase the stock shares for a portion of the actual price, with the remainder due at a later date or upon sale of the stock. The broker which places the order must have your margin portion of the cost before placing the order, which is typically 50% of the cost of the stock.
Bull or Bear Market
Bull markets and bear markets are terms used to describe trends in the stock market. A bull market is one in which stocks continue to rise over an extended period of time, and is considered to be an optimistic market. A bear market is one in which stocks fall in price over an extended period of time, and is considered to be a pessimistic market.
Splits
Splits are a way that companies reduce the value of their individual stocks without reducing the value of their stocks as a whole. The most common type of split is a two-for-one split, in which each share of stock is divided into two shares... this doubles the total amount of shares, though the total amount invested remains the same and each individual share is worth one half of its previous value. Stockholders end up owning twice as many shares after a two-for-one split, though the total amount that they have invested remains the same.
Bill Stone writes for Direct Online Loans who help homeowners find the best available loans via the http://www.directonlineloans.co.uk website.
Subscribe to:
Posts (Atom)
