Have you ever felt like the stock market was too complicated for you? Have you ever gotten lost amid daily reports, terminologies, charts, and predictions? Well, then you are a part of the millions of people who are trying to find a footing in one of the largest markets in the world. This article will break down this iceberg of mysteries, revealing the treasure within.
Stock, also known as capital stock, consists of all the parts into which a company’s ownership is divided. These parts are known as shares. These shares make up the stock of a company or corporation. For example, company X is divided into 100 parts. These 100 parts are called shares, and together, they make up the stocks of that company.
Therefore, in the stock exchange market, which is an avenue to trade stocks, what is on sale is not a physical commodity. The good on display, to be bought and sold, is ownership of certain parts of a company. When an investor buys a particular percentage of shares, he is entitled to the decision-making process of such a company. He also enjoys that same percentage of the corporation’s profit. As in the case of company X, if an investor buys 1.5% of shares, he is entitled to the same number of profits. However, not all stocks are equal; some come without voting rights and others with more powerful voting rights.
How Are Stocks Traded?
Stocks can be bought and sold either privately or through stock exchanges. These transactions are highly regulated by the government to prevent fraud. Apart from keeping fraudsters away, the government seeks to guard against stock trade that will cause pain to the economy, thus the need to cast a keen eye on transactions.
As intangible commodities, stocks are deposited in electronic forms known as demat accounts. On taking ownership of a share, the investor is issued a stock certificate. The stock certificate contains the number of shares owned by the shareholder and other specific details of the transaction such as the value of the share.
What Are the Types of Stock Available?
Stocks are classified into common stock and preferred stock. A shareholder with common stock is entitled to voting rights in corporate decisions. If you do not want the headache of dealing with company issues, you can purchase preferred stock, which gives the shareholder a legal entitlement to receive a certain level of dividend payments before such payments get to other shareholders. While preferred stock does not include voting rights, it can be a backdoor into the stock exchange.
If you need to exercise your investor’s power at some point in time, then you should buy convertible preferred stock. This gives the investor an option to convert his preferred stock into a fixed number of common stocks before a predetermined deadline.
There are no absolutes in the world. Some preferred stocks come with both the qualities of fixed returns and voting rights. Some have the option of accumulated dividends. Moreover, buying a preferred stock comes with a letter designation at the end of security. This letter signifies that there is a difference in the stock dealers with whom transactions are carried out. The letter designation is always attached to the title of the dealer. Although they do not have any extra rights attached to them, the letters are meant to make investors think otherwise.
There is also an unusual type of stock known as the Rule 144 Stock. Under the SEC (Selling Restricted and Controlled Securities) Rule 144, certain stocks are classified as restricted. Therefore, investors can only resort to private sales or an affiliated trade in exchange for seed money. When they want to sell their stocks, Rule 144 shareholders must meet all the requirements of the SEC rule 144 before liquidation. Also, under certain conditions, SEC Rule 144 permits restricted stock to be sold publicly.
Channels of Stock Exchange
Due to the desire of stockholders to sell their shares to worthy investors, stock exchanges and marketplaces for stocks are not in short supply. In recent times, stockbrokers have been at the helm of most transactions.
Companies that offer stocks for sale must first meet the listing requirements for such stocks. Such listings can be carried out in a foreign country if the companies want a wider investor base.