If you know what a stock is you’ll take a lot of confusion out of what you hear about the stock market, on financial channels, and in financial newspapers. You buy a stock because you want to make money, but how exactly does that happen? We’ll first define a corporation.

There are three types of business entities: sole proprietorship, partnership, and corporation. A corporation is run by a board of directories and is owned by many people called it’s shareholders. A corporation has to be incorporated in order to sell stock to shareholders.

Shareholders each own part of a corporation. They choose who gets on the board of directors. They don’t run the company, but it is their vote that chooses who does. These shareholders have equity in the company.

When you purchase stock in a company, you become a shareholder in that company. What you have bought is called a share of stock. You can buy 1 share or 5,000 shares. There is no rule about how much you can and can’t buy stocks as long as the shares are available for sale. Stock is a general term which often means one or more shares of stock.

Why do corporations issue shares of stock? They issue stock to raise money for their company. The money they receive is referred to as equity and is used as capital for the company. For example, let’s say company A decides to incorporate and issue stock. They may issue 100,000 shares of stock, sell them for $5 each, and raise $500,000 in capital for their business use. If you buy one or more of these shares, you will be part owner of company A.

Buying stock makes you money when you buy and sell it. You buy it at one price and sell it at a higher price. The value of the price goes up because of supply and demand. The more people buy a stock, the higher the price will go up to keep up with demand. If you buy a share of stock for $10, you have an initial value in that stock of $10.

Demand for the stock causes the price to be driven up. If the price of your stock goes up to $12, you can sell it for a $2 profit. An increase in demand causes the stock to go up just as a decrease in demand would cause it to go down.

You can also make money directly from the company in the form of dividends. If you have 100 shares of a company that issues a 25 cent dividend every quarter, you will be paid $25 every quarter, or $100 a year. Not all companies issue dividends every year.

Related posts:

1. Penny Stocks Market
2. What are Stocks, Bonds, and Mutual Funds
3. A Guide to Trading Penny Stocks and Small Cap Stock Stocks
4. Trading Your Valuable Stocks For Beneficial Investments
5. How To Pick Stocks And Mutual Funds