"Make it your mission to understand & invest wisely. Everyone has the potential to succeed in their search for true wealth & happiness & everyone can be successful in their pursuit of financial freedom." Contrarian Invest

Wednesday, 8 August 2012


Frequently asked questions about the stock market

The stock market offers an opportunity for anyone who has some kind of capital to invest in any public company. While it may seem complicated at first, the stock market is rather easy to understand once you know the basics. A lot of people may have questions about how the stock market works exactly, so I'm going to answer some of these questions in this article.

What is a stock exactly?
Well stock are portions of a company that you can trade on the stock market. When you own stock in a company that means that you are a part owner of the company and you get to share some of the company's profits and losses. The person who owns the stock is know as the shareholder and gets to vote who is going to be on the company's board of directors and his voting power is proportional with the amount of shares he or she owns.

What are the different types of stock?
Stocks fall into to main categories: common stocks and preferred stocks. Common stock holders don't have the same privileges as preferred stock holders. Per instance, preferred stock holders usually have more voting power than common stock holders. A company can also create special classes of shares that they can customize as they please. Per instance, they can choose to issue stocks that will give 10 votes per share and issue them to select buyers if they wish the voting power to stay within a certain group.
How does the JSE work?
The JSE, short for Johannesburg Stock Exchange, is the most prestigious stock exchange in Africa. It works like sort of a huge farmers market where people can openly find buyers and sellers. Stocks can be traded in two ways on the stock exchange. It can be done trough face to face trading between brokers and sellers or electronically.

What is a bull market?
A bull market is when the economy is booming and the economic indicators show signs of economic growth. Stocks are sold at a higher price in a bull market. Someone who has an aggressive and optimistic approach to stock trading will be said to have a "bullish outlook".
What is a bear market?
A bear market, contrary to a bull market, is when the economy is not doing well. During this time, stocks are sold at a lower price. Some people tend to stay away from bear markets, but there can be some advantages. Per instance, you can buy huge portions of companies for a fraction of the price in a bear market. You can also start buying stocks at a discount if you feel like the economy is going to bounce back.

How can I start trading stocks?
Well, buying stocks is usually done through stock brokers. If you feel like you know enough about the stock market and don't need advice on what stocks to buy or sell, you can go for a discount broker. But if you would like to have more assistance, you should pick a full-service broker that will help you make decisions on which stock to buy and when to sell.

I hope I was able to demystify how the stock market works. You can never know enough about the stock market, so I suggest you keep on studying until you've mastered the ins and outs of it so you can become very profitable.

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