Stocks
Stock Basics
What is a Stock?
To make things plain and simple, a share of stock represents ownership and is often referred to as a shareholder's equity stake in a firm. Even though a lot has changed in the stock market over the years, the core principal of stock investing remains - the opportunity to own a piece of a company.
Stock is broken down into two types; Common stock which gives investors voting rights in relation to their ownership stake, and some common stock may pay dividend payments as well. People who invest in common stock hope that their shares may increase in value as an investment. They hope the company will perform well, more investors will be attracted to the stock and their purchases will drive up the price.
Owners of preferred stock may not be entitled to the same say in company affairs as common stock holders; they generally receive higher guaranteed dividend payouts and the possibility of share price appreciation. Most stock transactions for us would be the common stock type.
Stocks are usually owned by individual investors, insiders such as executives, individual directors or employees, as well as large institutions like mutual funds and pension or retirement accounts. Some people believe that tracking insider and institutional activity in a stock can provide a good window into a company's prospects. However, the buying and selling among insiders and institutions is not always the clear-cut sign that it would appear to be, so it is often wise to view this information as merely one component of a deeper analysis since there are many factors involved in analyzing a stock.
Stocks or companies are generally classified into three groups usually in terms of its market capitalization, or "market cap". “Market cap” is calculated by multiplying a stocks share price by the number of shares outstanding. Small-cap companies are those with capitalization of between $250 million and $2 billion, mid-caps fall between $2 billion and $10 billion, and large-caps - or "blue chips" - are those generally above $10 billion.
Stock investors often go long in the market by buying shares in anticipation of a price rise. However, it is just as possible to be short by borrowing shares to sell now in the belief that the stock is headed downward, and therefore can be bought back later at a lower price. Going short still holds to the tried-and-true principle of buying low and selling high, but simply reverses the order to take advantage of a situation where a stock may be falling.
Stocks are traded at a number of different exchanges, including physical trading floors at the New York Stock Exchange (NYSE) and the American Stock Exchange (AMEX), as well as all-electronic marketplaces like the Nasdaq, the National Stock Exchange (NSX) and the NYSE Arca exchange. Stocks are identified by their alphabetical ticker symbols, which can vary from one to five characters in length. Shorter symbols (one to three) typically denote that a stock trades on the NYSE or other listed exchange, while four- and five-character symbols indicate a security trades on the Nasdaq.
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