The Dutch East India Company made a lot of money when their ships went on trips that went well, but statistically, only one in three sailing ships made it back home. The others were sunk by pirates or storms. It was important to put down on paper who was responsible for the ship and figure out how much money would be made for everyone who owned the ship. This is how the company became the world’s first joint-stock company: in the early 1600s, it sold securities. Let’s talk about why companies need stocks now, what they give owners, and how they can help you make more money.
What is a stock?
Everything to know about stocks is proof that you have the right to own a piece of a business. It shows that you own a piece of the business and gives you rights as a stockholder. You can take part in running the business, for example, or you can get dividends.
How to earn money on a stock investment?
Making money can be done in several ways:
Wait for the security’s price to go up, then sell it for more than you paid for it. For instance, you bought a company stock in May for $2,000, and by September, it was worth $2,500. You get $500 when you sell the stock.
You can make money when the price of a stock goes down. To do this, you need to open short positions. You borrow a stock and then sell it for a lot of money. This means that you are trading paper that you don’t have. As time goes on, the price of the stock goes down. You then buy it and pay back the person who lent you the money—the broker. He gets interest from this deal, which builds up every day until the short position is closed.
Note: There are important rules you need to follow when working with “shorts.” Learn all about them before you start trading.
Dividends give you a piece of the company’s money. Some companies give their stockholders a cut of the profits they make. If you own stocks in that company, you can claim income because you own its securities. It’s important to remember that not every business gives out dividends.
What are the types of stocks?
Common stock and preferred stock are the two types of stock that a company can give out. This is different:
If you own common stock, you can vote at a company’s stockholder meeting. One piece of paper, one vote. People who own ordinary stocks may get dividends. The issuer decides how much to pay out and how often. This is spelled out in the dividend policy. Dividend calendars will help you keep track of when payments are due.
Info about stocks includes the importance of remembering that not all ordinary stocks may pay potential, but some may. Why do those who invest need this? People who own stocks can make money when prices change, which means they can sell a security for more than it is worth. Most of the time, this kind of profit will be better than dividends.
With preferred stocks (prefs), you can find out ahead of time how much the dividends will be.
It’s not just profits that will be used to pay dividends. If the company loses money, the stockholder will be paid with its own money or property. Also, people who own preferred stocks but did not get dividends at the end of last year will be able to vote along with the other stockholders. One more thing that makes it unique is that if the company goes bankrupt, the preferred stockholders will get paid first.
Usually, prefs are less easy to sell and change value more quickly. They can also be less profitable than regular stocks. But you should know why this happens before you buy something.
What is a lot?
There is a unit called “lot” on the stock market that is used to measure a group of stocks. To help you understand, you can buy a package with some goods in it, like a box of cakes. If you want to buy only three items, the lot will be called “incomplete.” A full lot has eight items.
A lot is the smallest amount of an asset that can be bought. You have to pay 35,000 dollars to buy a stock of a company that costs 350 dollars. This means that the lot has 100 stocks of the company. To figure out how much you need to spend, just multiply the price of the paper by the number of sheets in the lot. The share stock exchange decides this, by the way.
Depositary receipts for stocks – what are they?
A depositary receipt is a document that lets you own a certain number of stocks in a foreign company while still being listed on a local exchange. It’s important to know the two acronyms:
- ADR stands for “American Depositary Receipts.” In general, receipts were first used in the United States.
- Global Depositary Receipts, or GDRs. They will let you buy and sell stocks on other international stock markets, like the London Stock Exchange. Some of these are Rusagro (AGRO) and Fix Price (FIXP).
People who own depositary receipts have the same rights as people who own stocks. People buy and sell these certificates like stocks and bonds, but one receipt can be worth one stock, half of a stock, or ten pieces. A depositary receipt is the right to own a stock that is traded on a foreign market instead of the domestic market.
How do stocks work and what risks in owning stocks
For stockholders, there are some risks:
- The price of the stocks could go down. You will lose money if you have to sell it;
- The business in which you have a stake could go out of business. You will only get what’s left over after the money has been used to pay employees and settle debts owed to the company by people like contractors and suppliers. People who own bonds will also get paid before you;
- You automatically take on currency risk when you buy stocks in foreign companies. You could lose money when you convert;
- The company’s leaders may decide to stop paying dividends. If you were counting on them, you would be in a tough spot.
Conclusion
When someone owns a share stock, it means they have a stake in a company. A stock can make money in many ways, such as by selling the security at a higher price, paying down its value, or paying out dividends. Lots, or units of stock, are used to trade stocks. If you want to know how much you have to pay for something, multiply the number of stocks in a lot by its price. There are risks, like the price of the stocks going down or the business going out of business, or stopping to pay dividends. You need to make a smart choice. Look into the market and weigh the risks.
