Understanding the Stock Market

Understanding the Stock Market. Keys to learning stock market basics.

Understanding the Stock Market

Most people think that the stock market is only for the rich and famous. However, understanding the stick market makes sense for everyone, because everyone invests in some way or another. The money you have in your savings account is invested by the bank. If your have an RRSP or an RESP, this money is also invested. Therefore it is in your best interests to have an understanding of the stock market.

Understanding the stock market begins with knowing what stocks are. Stocks are ownership in a certain company or different companies and the more shares you own in a company, the more dividends you earn when that company shows a profit. There are two classes of stock - common and preferred. Common stock represents actual ownership in the company and gives you more rights and privileges. Preferred stock pays dividends and is the choice of investors who want to earn money on their investments. You can purchase stock in two ways. You can purchase shares in a company when it puts the stock for sale on the primary market or you can purchase shares through a broker on the secondary market.

A part of understanding the stock market also involves understanding why businesses sell shares in their companies. They do this to raise money to finance different business ventures, pay for new equipment or expand the business. They need the money they raise through selling stock to give them additional operating capital. When the companies make a profit they reward those who invested with them by buying shares in the form of dividends. Dividends are in the form of checks that represent the investor's share of the profit or as more shares enabling the investor to make more money in the upcoming years.

Stocks are bought and sold on stock exchanges. These are located all over the world, with the most famous one being the New York Stock Exchange located on Wall Street in New York City.