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Stock Market Basics: The Essential Terms You Need to Know

From a distance, the prospect of buying and selling stocks seems both lucrative and glamorous. It is possible to make a great deal of money trading stocks, but there’s also risk involved, especially if you rush into it without knowing the language.

This article will help by giving you some basic but essential stock information. The terms covered here It will give you a good start in developing a financial vocabulary, and this in turn will increase the chances of your success when you begin to trade stocks.

Start with the most basic question of all: what exactly is a stock? Most people think they knew the answer, but others have shocking gaps in their knowledge when it comes to stock information, even some who are active in the market.

Simply put, a stock is a small ownership share in a company. Stocks are referred to as securities, and purchasing them allows investors to capitalize on a company’s growth and success.

As stated earlier, though, there is risk involved. If the company succeeds and the value of the shares go up, investors will make money through dividends, which are simply payouts given to investors as a company becomes more valuable. If the company loses money, though, the value of the stock goes down, which can cost investors some or all of their initial payout.

The vehicle for buying stocks is called a brokerage account. These are similar to bank accounts. They allow investors to buy stocks using an online broker who has the knowledge and experience to recommend the best stocks.

The two most basic types of stocks are common and preferred. Common stocks are just that—they allow investors to buy into a public company, and there are literally thousands of choices when it comes to purchasing these kinds of stocks.

Preferred stocks, on the other hand, represent a higher level of investment. Many preferred stocks pay fixed dividends, and they give those who buy them priority when it comes to benefiting from a company’s success. And if the company does struggle to the point of failing, preferred stock owners will benefit first if any of the company’s assets are liquidated.

This small sample of terms should be more than enough to get you started. This stock information represents the first step in your financial vocabulary, and you can easily delve further into any of them to expand your knowledge base. As you do you’ll start to learn more about making money and avoiding losses, and knowing these terms will also make the learning process more interesting, enjoyable and potentially lucrative!