The stock market can seem complicated to those not accustomed to it; but to those who take the time to get to know how stocks work, it’s really very simple. One might argue that something you have to learn is complicated, but it really comes down to being able to make smart decisions and reading the market.
So what are stocks anyway? Why can you buy and sell them, and how do they affect businesses?
Stocks themselves are shares of a business. Someone who owns shares of a company owns a part of it. This is why you hear about stock holder meetings and the stock holders themselves holding power over companies. This is the basis for how stocks work — you buy and sell pieces of a company, playing a direct part in their growth or shrinkage. A company whose stocks are being bought is going to grow, while one whose stocks are being sold will likely shrink.
Being able to buy shares gives the people the ability to contribute to a company they support or think will be successful. Companies rely on people to buy their stocks in order to gain extra capital and fund their own growth. In that same vein, if a company is speculated to or actually does do something that can impact their earnings, stock holders can sell — thereby either making or losing money on the deal — before the ship sinks.
If a company wants to expand but is not stock listed, they will have to get a loan to go through with their plans. Loans come with interest, and the interest on the huge loans that most companies aim to take out is more often not worth the basis for the loan in the first place. This is what makes stocks to valuable to medium and large businesses. Instead of getting a loan, they instead allow investors to purchase shares of their company to fund their growth and future plans. There is nothing to be paid back, and the system can be more profitable and beneficial in the long run.
After you find out how stocks work and find yourself interested in getting into the stock market, you have two primary ways to proceed. You need a stock broker in order to get started.
Brokers can be found online or at a physical location, but they are certainly not all equal. Full service brokers are the hardest to come by, but are those capable of giving you advice on your investments. Discount brokers are most easily found on the internet, and have lower commission prices than full service ones do; but they offer no advice in the way of buying and selling. They are still a viable option if you know how stocks work, and are willing to regularly do research on your investments.