What is the stock market? 🤔
1. Introduction
The stock market refers to a market in which shares of publicly traded companies are bought and sold. A stock is a small percentage of ownership in a publicly-traded company. If you own a stock, you’re part-owner of that company. With the stock market being such an integral part of the economy, it is important to understand what it is, how to start investing, and the various winning assets you can invest in today.
When you buy a stock, you are buying part ownership of a company. For example, if you buy 100 shares of Apple stock, you own 0.1% of the company because Apple has over 7 billion outstanding shares. This means that you have a small percentage of ownership.
As stated above, you are now a part-owner of the company. In addition to owning a part of the company, you have rights to dividend payments and voting rights.
2. But what the heck are Stocks?
We may spend here a full day explaining what stocks are. But in simple terms: a stock is a small percentage of ownership in a publicly traded company. When you buy a stock, you are buying part ownership of all aspects of that item, property, or goods.
3. Difference between Stocks and Shares
These two terms are usually used interchangeably and express more or less the same thing. But, the stock is more or less a generic word that usually refers to the ownership of a portion of a publically traded company. It can be in form of financial value in the bank, a physical asset, or any owned value from the company. Whereas a share refers mostly to a single aspect of a stock. Meaning, when a stock is quantified and evaluated, its various chunks are usually referred to as shares.
There are other more explicit and elaborate definitions with more nuances, but those are what you can have in mind for sake of this article 😊
4. Why is the stock market so important?
a. To the economy
The economy is always unstable and fragile. A simple fluctuation in the ratio between export and export can drastically through the economy into free-fall. That is why the government needs ways to tap into the essence of the economy and influence it positively in order to stay in control; that is where the Stock Market comes into the picture, alongside debt, bonds, and equity, and other good stuff that economists can spend a full day explaining to you.
b. To you and your company
The stock market is the most efficient way to determine the value of a company. A company’s stock share price can help determine its future value. As a result, investors can use this data to determine whether they want to purchase more stock or sell some of theirs.
Your ability to make money depends on the situation of the company you are investing in. For example, if the company is doing poorly and is about to go bankrupt, then you may lose money. However, if the company is doing well and is expected to do even better, then you may make money by selling your stocks.
5. How to start investing in the stock market
As previously stated, owning shares in a company means you own a part of the company. You also have the right to vote regarding certain company matters and receive dividends. However, if you are a first-time investor or simply want to know more about how to start investing, you should check out the article “How to Start Investing in the Stock Market” on Investopedia.com. It goes into more detail and explains more of the concepts discussed in this article.
6. Then what are bonds?
In regards to investing, a bond is an apparatus of responsibility of the bond issuer to the receiver. It is an agreement between two parties. These parties are usually organizations, private investors, or governments. Individuals, companies, and governments give bonds when they want to borrow huge sums of cash.
The most popular kinds of bonds are corporate bonds and municipal bonds. Bonds can either be in shared funds or individual financing where an individual or company would supply credit to another company or the government.
7. What is a mutual fund?
A mutual fund is a professionally operated venture capital that combines money from multiple investors to own assets, stocks, and other securities from one or many companies; usually startups. Mutual-fund investors can be individuals, private companies, or institutional in nature.
8. Cryptocurrencies vs Stocks?
As discussed above, stocks prove ownership of a certain value of a company. Stocks are safer and are usually held onto for the long run. Due to this, stocks are great storing value for things like security funds, retirement plans, inheritance allocation from one generation to another, etc.
On the other hand, cryptocurrencies are a virtual form of data storage that uses cryptography technologies to approve and verify ownership of digital assets. Cryptocurrencies usually store value in the hopes of turning a near-term profit for fast consumption.
9. Public Initial Offering (IPO) vs Stocks
An IPO, also known as a stock launch is an offering in which a company sells its shares to retail investors and also institutional investors. An IPO is supported by one or many finance banks. These banks also organize the process to list the shares on one or many stock exchanges.
Some investment platforms we use at our company (these are not affiliate links)
Take away
The stock market is a public market where shares of publicly traded companies are exchanged, bought, and sold by individuals or firms in the hope to make a return on their investment. The stock market is one of the safest ways to earn value that can benefit you and your offspring. To invest in the stock market, you need to familiarize yourself with concepts like shares, buying and selling stocks, bonds, mutual funds, IPOs, etc.
Learn More
Here are few more resources we think you should check out. Some are from us, and others we just found on the rich internet and found them very useful:
- A video by the popular YouTube channel Slidebeans that explains how investing in startups works: How much do startup investors make?
- A video by James Jani, a popular YouTuber, about how the stock market works: The Stock Market & Investing: An Ultimate Guide.
