Have you looked at the newspaper and glanced at the stock market report? You will normally see graphs, values, a bunch of letters and prices. However, it would seem meaningless if you do not know what those graphs and values stand for.
The stock market would seem like a very financially technical area that many are afraid to invest in it. Not only do you not understand the graphs it also has the part where you have to spend your money in buying shares. That spending part is the scary part especially with the impression that investing in the stock market is risky.
Fortunately, these “scary” thoughts can easily be dispelled with the right information. Here, we try to explain to you what the stock market is all about in simple terms.
It Starts With A Public Company
Every company starts as a private company. This is when a group of people started a business and formed a company for this purpose. Now let's say that the company would like to expand its operations, this would mean that additional funding is needed.
For the company to accomplish this, they may have to bring in a new investor to provide them with the finances that they need for the expansion. Now assuming the same company decides to take their operation at a nationwide scale, the only way for them to do that is to get more investors.
The solution is to open the selling of their company shares to the public, this way they could have more investors and more capital to fund their expansion. At this point, the private company is now a public company.
The company shares are bought by the investors. There are two ways on how an investor earn from the shares that he bought. An investor can either earn through the dividends given by the company, or the investor could also earn by selling the shares at a higher price.The latter is the common way of earning from the stock market.
Shares at Low Prices
If you look at the price per share for some companies, you will notice that there are share priced as low as $1. Does it mean that you can own part of the company for $1? No, this is because the stock market has set rules one such rule is the board lot.
The board lot is the trading unit or to put it simply the minimum number of shares that you can buy for a certain range of prices. For example, shares that have a price of $1-$2 has a minimum of 100 shares. So if the price per share is $1, then you have to spend $100 to buy your shares for that company.
The Stock Exchange vs. Stock Market
The stock exchange is the place where traders and brokers buy or sell company shares. The stock exchange is only for trading shares of public companies.
The stock market, on the other hand, is not a physical place but rather a collective term for sellers and buyers of shares. This involves not only the sellers and buyers of shares from public companies but also from sellers and buyers of shares from private companies.
Is the Stock Market “scary”?
The stock market is an economic network; it is not something to be scared of. In fact, it could be a financially beneficial system if you arm yourself with the right knowledge and the proper strategy when buying or selling your shares.