How Are Stocks Traded?

Investing in stocks is not that hard. If you are trying to imagine yourself collecting pieces of certificates that confirm your percentage of ownership in a certain company then you can breathe easy now. Selling and buying of stocks do not work like that. You don’t have to shout on a trading floor to get the stocks you want.

Before we start on explaining the trading of stocks and how you can purchase them, first we need to know what stocks are. Stocks are one’s ownership in a company. If one buys stock in a company, he will have a piece of the whole. The more stocks you have, the bigger the ownership. Stocks can also be called in different names such as share or equity. It can also be of different types such as preferred and common stocks. Being an owner of a stock entitles you to the earnings of the company based on your ownership percentage. Usually these are just small amounts but if they are invested as long term stocks then the returns are usually higher because the company has time to mature.

Now, due to the upgrading of technology, people don’t go around handing their certificates to be able to sell them. These are now in the form of electronic stocks called holding shares. This will make the transactions easier by just clicking the mouse or phoning the company that you are selling your shares. They are placed on sophisticated exchange markets and it facilitates the passing of the stocks from one hand to another. There are many exchange markets all over the world but the biggest and famous ones are the American markets like the New York Stock Exchange and NASDAQ.

We get to the purchasing phase. Stocks can be bought in two ways. First is the use of a brokerage. These are firms that you could run to in case you need help on the investing aspect. Some can be expensive because they give you a full service by giving personal advice and assisting you in terms of managing your portfolios. There are cheaper ones that are called discount brokers.  You’re basically on your own however.  No one is going to tell you which are the undervalued stock picks.

Other ways to buy them are by dividend reinvestment plans (DRIPs) and direct investment plans (DIPs). These are individual plans by the companies allowing the stockholder to buy the stocks directly in the company. It is advisable to purchase to them at steady intervals if you are into investing small amounts. These plans cost minimally compared to the brokerage.

There many ways you can put your money in and we are sure that there are many open markets that will take you no matter what your portfolios may be. Learn to balance your stocks and see where all it goes.

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