If you’re new to investing and the stock market in general, it’s important to understand what this type of investment entails. Understanding what stocks are and the investment opportunities available to you can help you determine if purchasing them is a good option for your financial future. Read on to learn more about stocks and the reasons you should consider investing in them.
What is stock?
Also known as equity, stocks refer to securities that represent a fraction of ownership of a corporation. Essentially, the stock of a corporation is all of a company’s shares. When you have a single share, you gain fractional ownership of the company in proportion to all of its shares.
Options for stock trading
When it comes to stocks, you have various investment options to consider. One option is over-the-counter (OTC) stocks. With an OTC stock purchase, securities are traded for companies that aren’t listed on formal exchanges like the New York Stock Exchange (NYSE). Instead, OTC stocks are traded through a broker-dealer network.
In contrast, you can also use the NYSE or NASDAQ, which are formal exchanges that account for a large amount of trading worldwide. The NYSE functions like an auction market, whereas the NASDAQ operates like a dealer’s market. With an auction market, people buy and sell between one another and an auction occurs wherein the highest bidding price is matched with the lowest asking price. In a dealer’s market, participants go through a dealer, or a market maker, when it comes to NASDAQ.
Why are stocks good investments?
If you want to grow your wealth, stocks can be a great investment that provides you with several advantages. Here are some reasons why you should consider investing in stocks:
You can invest what you can afford: Stocks allow you to consider your finances and any expenses you have before making a purchase. This allows you to avoid pitfalls and future investment risks.
You have several options to suit your needs: If you want to purchase stock, you can opt for a variety of options, including common and preferred stock. While they’re both types of stock, shareholders have no voting rights with preferred stock.
They’re easy to purchase: Thanks to the stock market, purchasing stocks is relatively easy. Once you’ve set up an account, you can purchase stock within a matter of minutes. You can go through a broker, a financial planner, or use the internet. Ultimately, it’s a personal preference based on your unique circumstances.
They’re easy to sell: When you have stock, you can sell it at any point in time. Essentially, you can turn your shares into cash quickly and with little cost to you. This is especially handy if you need cash in a hurry.
You can beat inflation: Purchasing stock is a great way to stay ahead of impending inflation. With individual stocks, you have the opportunity to outearn inflation.
Now that you understand stocks, you can make a more informed choice regarding your finances and purchase options. Consider whether the pros outweigh the cons and make your next move accordingly.