The primary thing to know about a stock market for beginners is the definition of stocks. Stocks refer to the ownership certificates of a company. A share, however, stands for a stock certificate of a company. When you hold a particular share of a company, you become a shareholder. Various companies make their stocks public, and the investment market runs on stocks. They are an excellent option for investment and are a great way to get returns on your money. If you’re a beginner to such concepts, read on to know more about the stock market.
What are the different types of stocks?
Stocks are mainly divided into two categories, which are discussed in brief below:
Preferred stock: A preferred stock represents a stock which stands for ownership in a company to a certain extent. However, this does not come with voting rights in most cases. A fixed dividend is guaranteed to the investor with a stock like this.
Common stock: As the name suggests, this particular type of stock is the most commonly traded stock by a typical investor. These stocks or shares represent some ownership in the company, and the investor is liable to get some yields on the profits of the company in the form of dividends.
While the options mentioned above are the main classifications, companies may divide the shares as they deem fit. In most cases where companies want the central voting powers to remain with them, these stocks are classified along with a strategy where only a specific group of shares are given different voting rights.
How do stocks trade?
Another fundamental lesson for beginners when it comes to stock market is to understand how they trade. They are either traded on the floor or through the electronic medium. Floor trading is the traditional way of stock trading which we often see in movies. Entities like the New York State Exchange (NYSE) use this method where thousands of brokers trade the stocks while entities like NASDAQ trade their stocks electronically. They have a database of shares from different companies and depending upon the market rate, these stocks are traded further.
What are the different order types?
Another thing to learn about the stock market for beginners is the type of orders that brokers use to deal. There are market orders, stop orders, as well as limit orders which are the primary type of orders. Before you start stock trading, you need to know the functions of these orders.
With the right guidance, you may get great returns from the stock market when you invest wisely.