Although trading stocks was traditionally a practice for the wealthy that wanted to become wealthier, the practice has become popular with people of all socio-economic statuses. Unfortunately, the stock market can be a difficult place to navigate if you don’t know what you’re doing. Many lack the basic knowledge of what stocks actually are, how they are traded, and basic strategies for investing.
However, difficult the trading of stocks may seem, those who play the stock market can experience some serious benefits. While the market was characterized throughout the 90’s as a way to get rich quick, the stock market has been effective in helping middle-class citizens to build long-term wealth and security. In addition, it can be a less time-consuming form of work. Here are a few tips to help get you thinking about investing in the stock market, as well as the benefits of investing. 
What is a Stock?
Simply put, a stock represents a claim on the earnings and assets of a specific company, and the size of that claim is based on the amount of stock owned. Whether you hear the word shares, equity, or stock; they all mean the same thing.
Initially, the company will offer stock as a way to finance the company, offering shares or small parts of the company to investors. Publicly traded companies are run by a board of directors; that is voted on by the shareholders. Typically, one share equals one vote in the company, which is nothing compared to those who own large portions of the company.
Furthermore, there are two main types of stocks, common and preferred. Common stocks are the most popular form of equity. The shareholders are usually paid dividends in varying amounts, which are quarterly payments out of the company’s profits. Preferred stock holders typically get fixed dividends paid out, and in the event of a bankruptcy preferred stock holders get paid before common stock holders. Finally, there are different classes of stocks that can vary from company to company. Usually, a different class of stock is issued to grant more voting rights to a person or group of shareholders.
Where are stocks traded?
Stock markets are physical and virtual places where buyers and sellers come together. The point is to make it easier to people to buy shares of companies. Physical stock markets happen in person. The floor of a stock market can be a crazy place with hand signals and people screaming, this is usually reserved for people that really know what they are doing.
In addition to physical stock markets, there are virtual markets as well. This encompasses internet and other forms of trading. Products like the eSignal trading software and others qualify as virtual stock markets.
Also, there are two different ways that stocks can be purchased; through a brokerage, or through DRIP’s and DIP’s. Full-service brokerages offer accurate advice, and manage your account for you; these types of brokerages charge you a lot. Discount brokerages offer lower prices, but also less face time with an expert.
Dividend reinvestment plans (DRIP’s) or direct investment plans (DRP’s) are plans by which shareholders are offered the opportunity to purchase stock directly from the company, and reinvest those dividends in the company.
How Will I know Where to Invest?
Stock quotes as they are printed in newspaper typically have 12 columns that can help you decide if you want to buy stocks. These columns tell you how high the stock has sold for, and how low in the last year. In addition, they list how much the dividend is per share, the percentage return of the dividend, and other numbers like how much the price has changed. These are there to help assess if the price of the stock will drop or rise. Stock quotes are offered online, and are many times easier to read.
To figure out the type of market many resort to animals to describe what is happening in the market. A bull market means that the economy is good, and it is a good time to invest. A Bear Market means the exact opposite, this is usually during a recession or depression. A chicken means someone who is not willing to take risks to see rewards, and a pig is an investor trying to hit it big with one investment; get rich quick schemes.
Finally, it is difficult to tell what a stock will do. While essentially the prices of stocks are set by supply and demand it is not always that easy. Buying stocks can be confusing and risky. Make sure you know what you are getting into before you invest. However, if you aren’t willing to incur risk, you probably won’t make very much money.
