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What Are Stocks?

Updated on March 26, 2012

Stocks we all love to hate, and hate to love them. They are a necessary part of achieving the ultimate passive income though. So, what do you know about stocks? Let’s take a look at the basics of stocks and what they are.

When you own a share of stock, you own a piece of that company. There are a lot of terms in stock ownership, so when you see words like equity, shares, and stock it means the same. So, you now own a piece of this company what do you do with it? What are some of your rights as a stock owner in a corporation?

1. You are entitles to receive share certificates to prove ownership in the company

2. Companies allow you to receive annual financial reports.

3. Have a right to vote in stock holder meetings

4. As a stock owner if the company gives out dividends you receive your proper share

5. Stock holder has right to exclusive company information via the register

Trading of stocks used to be done in the form of stock certificates or bearer bonds. But, today trading of stocks is done mostly electronically. Most people are trading online using any number of online brokerage companies to buy and sell shares of companies. The idea behind purchasing a stock is to make money. In the hopes that companies share price will continue to grow. As with any investment if your research into a stock is accurate you can do well.

Types of Stock

1. Common Stock:

This is by far the most common type of stock. It is a stock that is sold on the market to the general public. The bearer of common stock holds the rights listed above in the trading of this company share. These stocks can be split into two separate categories.

a. Class A: Class a stocks are exclusive for those who have voting rights in company stockholder meetings.

b. Class B: Class B stocks shareholders have no voting rights at company stockholder meetings.

2. Preferred Stock: Proffered stock is available in most companies and is reserved for people, institutions, or funds. These stocks are given priority in meetings, financial losses, and other types of issues company may have

3. Unlisted stock: Although not as common as the other two types of stocks. This stock is bought on a secondary market or directly from the company when it needs to raise more capitol.

Investment Strategies

1. First rule of thumb when trading or investing. Make sure all your other priorities are taken care of first. If, you have any debts, money owed, or family they are the top priority. Any money that you have left over after these have been taken care of, can be used to trade and invest.

2. Second always be learning. Nothing will hurt you more than trying to shoot darts at the stock exchange and investing in the first company. Get the company financials, ready investment magazines always be trying to educate yourself in the markets.

3. With the advent of Google, there is no excuse to try and not to learn from the experts. There are tons of blogs, articles, and other information on trading Use it, compare it, and learn it.

4. Trade with who you know the most about. The companies that are in your local area are the ones you would know the most so if you are new to trading stick with whom you know.

5. Always diversify and never put all your eggs in one basket. If, you do and something happened you can end up losing your investments.

6. If, you are uncomfortable with trading yourself or do not have the time use a financial broker. It is always recommended you talk with a financial planner if you are unsure of your next step.

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