Stock is the shares in which ownership of a company is vested. In ordinary language, the words ‘stock' and ‘trading' are used interchangeably. In American English, however, the words are used differently. In layman's terms, the stocks are collectively referred to as ‘stock'. Each share of stock represents a fractional ownership in percentages of the total number of outstanding shares.
Every share is transferrable to some one person and each owner of a particular stock is entitled to his dividends by the company. Under normal conditions, most of the companies in the world are classified as ‘non-diversified'. That means that the ownership is not in general distributed to common stock holders like in a diversified firm. Usually, a portion is reserved for common stock or preferred stock. This portion is called ‘preferred stock'.
The remaining portion, called ‘common stock', can be owned by any one person. In general, this portion is sold to the public and bought by individual investors. A share certificate issued by a company is one method of buying or selling of common stock.
Issued by the stock exchange, it shows details of ownership. A common stock certificate usually contains information like the name of the shareholder, age, address and nature of occupation.
The most important section is the subscription agreement, which is the complete agreement regarding terms and conditions of purchase and sale of common stock. There are different kinds of ownership structure based upon the type of business. Dividend Equities or stocks that pay dividends are paid by the shareholder periodically to the Corporation.
Normally the Board of Directors delegates a portion of the dividend to the company. These types of shares have less risk and higher liquidity and are traded on major exchanges. Another kind of ownership is Leverage Stock, also known as Capped shares in stock market parlance, which enables the ownership to leverage the Corporation's capital.
By increasing the ownership, the share holders will have control over the Corporation's growth. Also, these shares are subject to specified restrictions like the limitations of number and minimum share amount. To buy and sell new shares on stock exchanges, investors use bid/ask spread. It is used to quote a price for the stock.
A bid is an offer made by an investor for the new share and includes the amount asked for and expected shares to be purchased. An ask is the request by an investor for the same price and includes the amount asked for plus the amount that was quoted as the maximum bid price. Bids and ask spreads are usually done through brokers and it is up to them to determine the best quoting formula.
Short Selling and Day Trading: Short selling and day trading are two types of selling or trading stocks. In short selling, an investor sells all his stocks on the same day and waits to make a profit until the following day when he can buy the stocks again. Day trading is the reverse of short selling. During the trading day, the investors do not have to wait to purchase the stocks but can buy and sell the stocks at any time.
Over-the-counter Market: The Over-the-counter market is a marketplace where the stocks are traded over the counter. Trading is done through broker dealers and not through centralized stock exchange. The advantage of trading OTC stocks is that you can buy and sell them with less brokerage cost. However, it also comes with higher risks of losing money.
Number of Assets: An important point to be considered while trading stocks is the number of assets one has to invest in order to trade. Trading should be done only with adequate knowledge and not with emotions. Trading with emotions will result in loss of profits and losses. Also, when you trade OTC stocks, you should not consider your own opinion as everybody else's view is also important.
The opinion of other people about the price value of particular stocks should not be trusted. One Way Market: In this type of trading, there is no such thing as buying and selling on the same day. Rather, you purchase shares from the broker in one way and then sell it to the buyer in another way. For example, you purchase shares from a stock exchange and then sell them to a dealer.
This is one way trading. Fixed Rate Trading: In this form of trading, the trader is not allowed to change the rate he is offering to his client. Instead, when a client asks for quotation on a certain rate, the trader will offer it only once and the same cannot be offered any other time. If the client finds the offer attractive, he may subscribe for a particular trading account. This type of trading requires a higher amount of money as compared to the trading done through the share market