What is a stock?

Chapter 1: Introduction

Imagine that you own a part of a company, and this is what it feels like to buy shares.

Shares are the way in which a company raises funds for the operation of its business. This capital is called "capital" or "equity", and shares are also called "equity" or "shares".

Thus, if a company divides its capital into 100 shares and offers them for £ 1 each, its "issued capital" is £ 100. However, other prospective shareholders may purchase at a higher price, such as £ 1.50 per share, so the company's "total market price" ("market value") that is £ 150 (100 shares x £ 1.5 = £ 150 market cap).

Chapter 2: Why Buy Shares?

Stocks are worth investing in for two reasons: first, they have the potential to appreciate. This means that investors are able to make a profit when they sell the stock. Second, the company will pay dividends to shareholders on a regular basis based on profitability.

Remember two things: first, the stock price may appreciate or depreciate, or even become worthless due to the company's poor management; Second, not all companies will pay dividends, some companies prefer to keep their earnings tightly in their pockets. Technology companies often do this. As a result, shareholders have to take risks in the hope that the company's prosperity will lead to a rise in the stock.

Chapter 3: How to Invest in Stocks?

From a technical point of view, shares in private companies can be bought. For example, a friend or relative founded a business and you participated in the investment. You get the corresponding shares, but the "liquidity" of these shares is certainly weak. In addition, the sale of shares has a certain degree of difficulty, the trading conditions will be relatively harsh.

The most liquid stock markets are listed stock markets or large stock exchanges, such as the London Stock Exchange, the New York Stock Exchange, NASDAQ, the London Alternative Investment Market, euronext and the Hong Kong Stock Exchange, among others (Click here for a list of stock exchanges).

You can buy or sell shares on the above exchanges through stockbrokers, securities dealers or banks that provide stock trading services. The easiest way is to log into an online trading platform and bind a bank account to trade.

There are usually two types of quotes for stocks: the "ask Price" ("Bid") and the "bid price" ("ask Price"). The "ask price" is the highest of the two and the highest price the seller expects. "The purchase price is the maximum price the buyer is willing to pay. The difference between the ask price and the bid price is called the "spread", which is the profit the broker makes after the transaction is completed.

Chapter 4: What Affects Stock Prices?

If the company's profit margin is the only factor affecting the stock price, then things are much simpler. In fact, there are many factors to consider.

There is no doubt that the current strength of the company is very important, but buying shares is undoubtedly a gamble on the company's future performance.

In this way, you need to consider the supply and demand of stocks in the market. The more stocks you can buy, the lower the stock price. However, the shares of large companies such as BP, Shell, HSBC and Apple Inc. are usually highly liquid, so there are always shares available for trading in the market.

Next, you also need to consider market movements, which are reflected in changes in indices such as the FTSE 100, the S & P 500, and the Dow Jones industrial average. In other words, the entire market can go up or down.

In addition, there are many factors that can affect stock prices at any time, such as: company announcements, political events, news reports, changes in exchange rates, investment reports from brokers (buying and selling by large institutional investors such as pension funds and insurance companies) and sometimes even market "intuition". In short, there are a variety of factors that affect stock prices.

Chapter 5: Analysis of Pros and Cons

Stocks can be a good way to get dividends and capital gains, after all, putting money in a savings account does not bring double returns, which is the benefit of investing in stocks.

However, a fall in the share price will result in an investment loss, and the company may also reduce or stop paying dividends. These are the risks involved in investing in stocks.