Things You Must Know Before Investing in Stocks


If you're worried about investing in stocks, you're not alone. The fear of losing half of a portfolio's value deters people with little or no experience investing in stocks, leading many to avoid the market altogether. However, the reality is that buying stocks involves risk, but if done in a disciplined manner, it can be one of the most effective ways to increase your overall wealth.

What exactly is an exchange?

Companies go public to make their shares available to a wider audience. As a trader, you can choose from a variety of stocks issued by multiple companies to grow your portfolio. The prices of stocks traded on stock exchanges fluctuate in response to buy and sell orders placed on stock exchanges.

What exactly are shares?

Stock refers to a company or company's ownership and a partial interest in assets (what the company owns) and a company or company's profits (the profits it earns). Stocks are also sometimes called shares or equity in a company.

In the case of stock ownership, this means that shareholders have an interest in the company equal to the number of shares held as a percentage of the total number of shares in the company. For example, if an individual or company owns 100,000 shares of a company and there are 1,000,000 shares outstanding, they will own 10% of the company. Most companies hold investments worth millions or billions of dollars.

Why does a company issue stock?

Entrepreneurs who want to take their business idea from idea to reality need to do many things such as: B. Rent buildings, hire staff, buy equipment and machinery and build distribution network. Depending on the size and scope of the startup, these resources can cost a lot of money.

By selling stock (equity financing) or raising capital (debt financing), startups can raise the necessary capital (debt financing). Even in the technology and biotech industries, where companies have few tangible assets, debt financing can be a problem for startups. In the early days of a company, when there are no sales and earnings, loan interest will represent an additional financial burden. So, at the end of the day, the only option a startup has is an IPO.

The Bottom Line

Stocks play a vital role in the business mix of both companies and traders. It forms a perfect business model, where interests are aligned and profits and losses are split equally. However, it's important to do thorough research before investing in stocks so that you won't regret it later.