Trading stocs definition: Stocks are equity investments, because their return is not fixed as it depends on market fluctuations.
Stocks represent part of the capital of a corporation, so that the holder of shares is the owner of the company in the proportion of his holding. In other words, they are property titles issued by public limited companies to obtain financing.
Primary Stock market and secondary Stock market
Primary Stock market
In this market, companies offer stocks that they issue for the first time, and investors who buy them become shareholders or partners, as this is usually done when the company is incorporated or when the company’s capital is increased. They do not always go public, so we do not trade in this market. We trade in the next market.
Secondary Stock market
This market consists of the world’s stock exchanges, the bond market (government debt) and the official futures and options markets, where investors buy and sell listed stocks already issued and outstanding, and other instruments. In other words, they have already passed through the primary market. Most of the trading we do takes place in this market.
Types of Stocks
What are the different Types of Stocks?
The two types of stock a company can sell are: common and preferred stocks, we will see their differences.
Common stocks
Most of the stocks traded on the stock exchanges are of this type and entitle the holder to receive dividends, voting rights at shareholders’ meetings, the right to pre-emptive subscription of new stocks that are issued. For small investors like us, the most common is that we have access to dividends in case the shareholders’ meeting decides so, but not to vote directly at the meeting, but this is done by the broker for us.
Preferred stocks
This type of stocks does not have the right to vote at ordinary meetings, but does have the right to vote at extraordinary meetings. What they do have is the guaranteed payment of a higher dividend than ordinary stocks, and in case the company is dissolved they also have the right to be paid before those who hold ordinary stocks.
Stocks are a good investment instrument because of their profitability, which comes from price fluctuation and dividends.
Although they have no maturity date and are considered long-term investments, they can be bought and sold at any time, even in the short term, as long as the company continues to exist. That is why it is advisable to analyse a company very well, to make a fundamental analysis and not only a technical one, because what you have to avoid is to enter a company that later goes bankrupt.
How do you earn money with Stocks?
You earn with upward strategies, that is, you earn as the price of the stocks increases, therefore, any strategy for buying shares must be with an upward trend. We will see it better later, but this is how a stock generates profit:
Selling price – buying price – broker commissions = profit.
Of course this equation must be positive.