The Basics of Investing in Stocks


If you hear someone talking about the stock market, it can sound like they’re speaking a foreign language. Stocks are a part of a complex financial system that includes many different terms, regulations and jargon. Investing in stocks can be a way to grow your money and reach financial goals like retirement. But it’s important to know what you’re investing in before you get started.

A stock is a share of ownership in a publicly traded company. Companies sell shares on a stock exchange to raise capital and grow their business. Investors buy and sell shares of a company based on its potential to go up in value or pay dividends.

When a business is looking to expand, it needs more money to do things like design new products and hire more people. To raise funds, a company might issue new shares of stock. If you own those shares, you’re entitled to a portion of the company’s profits and can make or lose money based on whether the company becomes more profitable.

Companies can also use the stock market to raise funds for debt repayment, buy other businesses or fund research and development. In addition to buying and selling shares, investors can also earn income from dividends and participate in shareholder meetings. The stock market is a global decentralized marketplace where buyers and sellers come together to buy and sell securities. Companies must be registered to list their shares and must comply with various regulatory agencies, such as the Securities and Exchange Commission.

The price of a stock at any given moment is strictly determined by supply and demand. The supply is the number of shares available to be sold, also known as the float, and the demand is the number of shares investors want to buy at that moment. The instantaneous price is the product of this float multiplied by the stock’s current market value. Throughout the day, the price of a stock fluctuates as investors enter and leave the market.

Investing in stocks is often a long-term strategy, and many investors stick with their stock portfolios for years, without frequently buying and selling. Over the long term, those who are willing to wait and let their portfolios grow often see strong returns on their investment. But it’s important to remember that even over the long term, a single stock’s price can be affected by a lot more than just how well a particular company is doing.

Stocks can be classified in a few ways, including by their size as shown by their market capitalization and by industry sector. For example, shares in large companies are called blue-chip stocks and those in smaller companies are called small-cap stocks. There are also a few categories of stocks that are very low priced, such as so-called penny stocks, which typically don’t pay dividends and are considered highly speculative. In addition, many investors choose to build a diversified portfolio of stocks by purchasing shares in a group of companies, such as an index fund or mutual fund.

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