Stock Basics You Need To Know

A thorough understanding of stock basics is necessary if you are planning to try your luck in the stock market. It is also important to be well versed with stock basics if you are planning to include stocks in your investment portfolio.

If you are holding stock of a company, you have ownership of the company and you will have a claim in the earnings of the company corresponding to the number of stocks you own. More is the number of stocks you own; greater is your share in the company. You not only have a claim in the company’s earnings but also have a voting right related to stocks depending on the type of stocks you are holding.

Types of stocks: Basically there are 2 types of stocks.

Common stock:
Common stocks are the most common of all stocks and majority of the stocks are usually issued as common stocks. If you are holding common stocks of a company, you can claim a portion of the earnings of the company. You have the right to elect board members who decide important issues related to stocks. These stocks give higher returns over a longer period due to capital growth. The returns are high but the risk involved in these stocks is the highest. For instance if a company declares bankruptcy common stockholders will receive their cash only after the creditors, preferred stockholders and bondholders get paid.

Preferred stock:
Preferred stocks enable you to claim a portion of the company’s earnings but don’t allow you to vote. Preferred stockholders get returns as per fixed dividend as long as they are holding the stocks. The risk involved is less; hence the returns are not as high as the common stocks. In case of common stocks, the dividends are variable; hence returns vary. In case of preferred stocks, the company may buy back stocks at any point of time at a premium rate.

Factors affecting stock prices:
There are many factors that impact price of stocks. Some of them are given below.

Company news
Company earnings
Stock momentum
Supply and demand
Economy
Company growth
World events
Industry stocks
Price of oil
Inflation
Company layoffs

It is very important to know the stock basics before you make an investment with your hard earned cash. Having a thorough understanding of stocks will enable you to get better returns.