Here are some basic concepts relevant to stocks and the stock market to get us started:
Simply put, a stock or share is ownership in a company. When you buy a stock, you become an owner in that company and have a claim to its assets and earnings. Assets are the property owned by the company such as the building in which it operates, inventory it is holding, equipment, etc. Earnings are the money the company makes from selling its product or service. Stock ownership = company ownership. You become part owner of the company when you buy its stock and take part in its gains and losses. If you pick good companies that are gaining, you gain with it. There is preferred stock and common stock but for now, we won’t complicate matters as common stock is what most of us would be purchasing in any event.
You are not able to buy stocks in any company you wish. A company must be listed on a stock exchange or market in order for the public, like you and I, to be able to buy a share in it. Companies listed on the stock market are called public companies and you are able to buy stock in them. Many companies are not listed on a stock exchange and they are called private companies. The public is not able to buy into private companies off a stock exchange. These types of companies are closed to the general public buying into them and have their own set of rules including when somebody might be able to buy shares in it. The companies we will be talking about on this site are mainly public companies. However, I may highlight some interesting private companies to keep an eye on as they may eventually become a public company in which you can invest.
A stock market is simply the place where stocks are bought and sold such as the New York Stock Exchange, Toronto Stock Exchange, etc. Different companies are listed on different stock exchanges so in order to buy a specific company, you will need to find out what stock exchange it is listed on.
Stock Broker or Brokerage:
In order to buy and sell a stock and access the stock market, you need to go through a stock broker or brokerage. This is the investment professional or service that you will tell what stock you want to buy, how much and then later if you want to sell, you will need to go through the stock broker or brokerage to do so. They earn their money by charging a fee for each buy and sell of a stock you make. All of this can be done by yourself through a discount brokerage firm for a small fee. I am going to guide you step by step in the next post how to go about getting an account so you can start buying and selling stocks. Getting an account and feeling comfortable with how it works is the first step towards managing your own stocks and being able to buy and sell them when you wish. Some accounts have a practice account which may be an excellent way to get started.
That’s it for now on the bare essentials: You can buy stock in a company that is listed on a stock exchange through a stock broker. I talk in the next post how you make money on the stock market and why you would want to invest in it.