The stock market can be a difficult place to navigate, but it also has the capability to produce some extraordinarily high returns on your investments. In order to get started, you need to understand a few basics.
What is a Stock?
A stock is simply a share in the ownership of a company. It is the smallest unit of ownership that you can own. Most individuals own one share of stock in a company, which entitles them to 10 vote per share of ownership. Companies can issue more shares, however, this is called issuing more stock. The total number of shares outstanding is known as the capitalization.
How are stocks priced?
Stocks are normally offered on an auction basis. This means that the prices are set by a public at large, in a random selection process. The bid price is what you pay and the ask price is what you get. This process is called “bidder demand”
What is a stock quote?
A stock quote is a snapshot of the price of a particular stock at a particular time. All quotes are rendered in a computerized system known as an electronic trading system. The computer looks for supply and demand trends and automatically executes buy and sell orders. The electronic system is the source of accuracy in the quote. It can calculate a historical stock quote of greater than one hour’s elapsed time.
Why do stock prices fluctuate?
The price of a stock depends on supply and demand. If there are more people seeking a particular stock than there are shares of the stock, then the price goes up. If there are fewer people seeking a stock than there are shares available, then the price goes down.
How do you protect yourself from bad stock choices?
First, make sure the company has a good track record. Secondly, review the stock’s prospectus for any financial details, such as earnings, debt, etc. The prospectus should include a complete understanding of the risk involved. Make sure you understand the risk disclaimer. Also, review the stock’s profile on Yahoo Finance to make sure it hasn’t gone down sharply recently. Finally, review any SEC filings to find out about any company mergers or bankruptcies.
Finally, always research on the background of the company and its directors. The financial records of a company’s top management can be informative. By reviewing the company’s financial information, you can begin to see the chain of events that lead up to the current stock price.