The Basic Terms You Should Know Before Investing in the Stock Market

A stock is a category of security in a corporation. It indicates ownership interest in the corporation; with the interest including a claim on its proportional share in part of its assets and profits. The price of the stock generally goes up when there is good performance by the company. Even if the market sentiment says that the company will do well, the stock price tends to jump up.

Any person or an institution is called a shareholder or stock holder if he/she/it holds any part of a share or stock in a public or private corporation. The company shares its profits with its share holders by way of dividends.

The stock portfolio of an individual entity is the sum total of all the stock holdings resulting on account of the purchase of the total shares of the stocks by the individual.

A majority of people hold the ‘Common’ stock, through which they have the right to vote and also the right to be given dividends by the company as they hold shares of its stocks. All public trading companies have Common Stocks. Generally, if it is said that a certain stock is fluctuating, it refers to the common stock. Due to their high liquidity, common stocks can easily be sold and bought and this freedom to trade at any time whenever the market is open is beneficial to the common investor.

When a company makes good profits and delivers dividends, people prefer to buy the company’s stocks and these are called as ‘Preferred Stocks’.

The stock market is the place where there is daily buying and selling of stocks of many companies, mutual funds, commodities and bonds. It is also referred to as the Wall Street or the Stock Exchange. The state of the U.S. economy can be determined by the way the stock market is behaving. Thus the stock market is the financial pointer of the performance of the U.S. economy and can foresee the same almost by six months in advance. During times of inflation, investing in the stock market in the right stocks can generate good returns.

In order to better understand the position of stocks of companies in the stock market, there are some market indices like the S& P 500, NASDAQ Composite and the Dow Jones. Also, the market is split into sectors named ‘Stock sectors’ on the basis of the business nature of the companies holding shares in the stock market. The investor can follow these sectors in order to comprehend the position of any stock and its performance as compared to its peers. Planning on how to trade stocks with help of market indices and trends of the stock market can be done through advice from experts and thorough practice.

When a company comes into existence, the shares that are authorized but not open to the public are termed as ‘Authorized shares’. Some shares are retained in the company’s treasury for future use and remain un-issued to its employees and public and these are called ‘Unissued shares’. Those stock shares of the company that are used for its employees in the form of incentives and reimbursement are called ‘Restricted shares.’ There are some shares that can be traded in the open market and bought by individuals. These are referred to as ‘Float shares’. The sum total of the Restricted shares and the Float shares issued by the company are the ‘Outstanding shares’ of the company.

In most corporations, stock-ownership in a company entitles a voting right to the share holder when there are specific corporate decisions to be made.
If a person owns ‘x’ number of shares of a company and if there are ‘y’ shares of stocks outstanding in the company, then the share holder owns 100x/y percent of the company and he can exercise a proportional vote as per his ownership therein.

When one purchases shares of the stock of a company, the liability thereon is limited. This means that in case the value of the stock plummets, the investor stands to lose the money that he invested on the same and also whatever dividends that could have been forthcoming his way had the company’s stocks performed well.