How Does Stock Trading Work?

Stock trading represents a form of investment that allows an investor to share in the ownership and profit and loss of a company. To do this, you can use a company like Varengold to get started.For the investor, this type of investment offers the opportunity for profit by either the individual stock growing, as in the case of growth stocks, or dividend in the case of longer established companies. Either way the company gains investment capital and the shareholder investor a opportunity to make money.

All if this sounds basically simple and it is. A stock, also known as a security, is essentially part ownership in the assets of a company. A company sells stock in order to gain what is known as equity financing. The opposite is what is called debt financing which is the taking out of the loan. The main contrast between the two types of financing is that shareholders gain the opportunity to share in the success or failure of a company as opposed to the financing using a loan, as that has to be paid back with interest.

There are two types of stock, private and public. Public shares are those that are bought and sold on the stock market or exchange. Private shares are shares that are held by a company that does not offer the shares on the open market. In a sense, limiting the pool of potential investors. However, the advantage of private over public is that control of the voting rights of private shareholders is easy to accomplished compared to public shareholder. This means that control of the company can be kept in the hand of a few select investors.

Public shares are openly bought and sold on the exchange, also known as the stock market. Different criteria determine on which exchanges a stock is listed. For example, some stocks are listed on the NASDAQ and not on the NYSE due to difference in size and profit potential. Buyers, working through a brokerage buy and sell stock on the exchange in the hopes of maximizing their profit. This is where the old mantra of buy low and sell high come into play.

While the concept of stocks and the stock market are basically simple, the overall aspect is actually more complicated due to the various elements that can make up a individual share price. Many companies still comply with the supply/demand economic model but various geopolitical factors can have a profound effect on the share price causing either long term or short term volatility in price. For the new investor, stocks are a good way to develop a diverse portfolio and over time as knowledge is gained the potential for profit will increase.