The stock market can feel overwhelming, whether it’s your first day or your fiftieth year. To start, what exactly is the stock exchange? The stock exchange is nothing more than a global network where large sums of money are moved back and forth. The following are some other common questions people have about the stock market.
What are Securities?
Securities are traded on the market, in the form of shares. Why are shares traded? The value of a share is related to the company behind it. Securities are rights to assets in the form of shares. The bigger the overall size of the company, the bigger the shares.
The company can set the shares and invest or expand its business. The trading of shares is typically a game of chance. If a company has a good reputation, investors will back it. Unlike a normal market where goods can be touched, only virtual goods are available. They appear in the form of share prices on monitors. Shareholders must act quickly in order to not miss an opportunity.
When you buy a share of a stock, you are entitled to a small fraction of the assets of that company. What exactly do assets entail? Assets include everything the company owns (buildings, equipment, trademarks), and earnings (all of the money the company brings in from selling its products and services.)
What are Dividends?
Not every company pays dividends, but some do, especially larger ones. A dividend is a portion of the company’s profits paid to investors, usually on a quarterly basis, per share. Dividends are essentially an extra that a company uses to entice investors into becoming shareholders. While some investors use dividends as a long-term strategy, a higher dividend yield isn’t necessarily favorable. Instead of looking for high dividends, consider dividend stocks in sectors with room for growth as the economy improves, such as health care and technology.
A dividend is essentially a thank you, instead of empty words though, a company pays back its shareholders with money. If you have invested in the company, many established companies offer a dividend. Think of it as a thank you card with money in it. Before this can even happen, the company lets you know what they will pay you in dividends. The company lets you know how much they will pay you typically quarterly and yearly.
Stay tuned for part two of my series on the stock market!