Learning About The Stock Market - A Stock Market Overview

Learning about the stock market can be a bit overwhelming for some people. There are so many options, which do I choose from? How do I invest my money? These are all the questions I had when I started contemplating about investing my hard earned money into the stock market. Below is an stock market overviews that gets right to the bottom of stock market basics with what are stock and what are the different types of stock traded in the stock market.

What exactly is a Stock?

When learning about the stock market, the first thing we want to be certain of is what exactly is a stock since that is what you will be trading. By definition a stock is a share in the ownership of a company. Stocks represent a claim in the company's assests and earnings. The terms shares, equity, and stock are interchangable and all mean the same thing.

Being a aprtial owner in a company means that you do not have the rights to manage to company or debate the everyday business of the company. It just means you are entitles to a portion of the company's profits and have a claim on assets. Profits are paid out in the forms of dividends. You only get to claim on assets if the company goes bankrupt. You'll basically recieve what's left after all the creditors have been paid after the company's liquidation.

The importance of stock ownership is your claim on assets and earnings. Without this, the stock wouldn't be worth the paper it's printed on.

What Stocks are Traded?

The next important thing when learning about the stock market is to undertsand the different types of stocks you can trade. There are two main forms of stock: common and preferred.

Common Stock
Most stock falls under this catergory because, well, it's common. Common shared represent ownership in a company and a claim (dividends) on a portion of profits. You get one vote per share when electing board members that oversee management of the compant. Over the long term, common stocks yields higher returns than almost every other investment. This is because common stocks entail the most risk.

Preferred Stock
They are basically the same as common stocks except you do not have the same voting rights. Investors are usually guranteed a fixed dividend forever, unlike common stocks where dividends are variable and not guaranteed. They are thought to be somewhere between bonds and common stocks.

Stock Classes

Stock shares can come in different clases as well - A & B. These also have to do with voting rights. A classs A share tends to carry more voting rights per share than Class B shared, but this is not always the case.

Next:How do Stocks Trade? Explaining Stock exchanges and what causes stock prices to change.