What are stocks, shares and equities?

Before you can consider opening a trading account, you will need to have a solid understanding of exactly what you are spending your money on. Many customers simply see the success of others on the financial markets and decide to perform stock exchanges without having any knowledge of exactly what they are trading or if a share price is actually good. A stock represents how many shares or a fraction of ownership in a business or corporation. To put it simply, when you buy a certain number of shares, you are essentially buying a portion of the companies that you are looking to invest in.

These stocks entitle you to reap the benefits of the profits and actual value of the company itself. With the value of companies changing just about every day, so too will the price of the stock that you are looking to buy. Stocks work on a supply and demand basis, so they are finite within each company and each share has an intrinsic value. If you are looking to buy a certain number of shares with a company, you will need to pay the price that shareholders are willing to sell theirs for. This results in a constantly changing price of company stocks and gives rise to what we call the stock market.

There are two ways that you can look at making some gains with stocks. You can either invest in the preferred stock price of a certain company or you can rely on the dividends that certain stocks pay out to shareholders. Dividends are a portion of the company’s profits via their quarterly revenue that gets paid to all stock owners, relative to how much stock they own. Most traders on the market rely solely on the appreciation of the value of the stock they are looking to purchase.

With the supply and demand structure, if company profits promise growth and start performing well, then the current stock owners and shareholders are less inclined to let go of their stocks hoping that they will increase in value. This pushes up the price of the company stock and allows all shareholders to benefit as interested customers begin to pay more and more for the stock they are looking to buy.

Both stocks and shares will refer to units of equity that you, as a shareholder, will have of the corporation you are investing in. To understand stocks and shares, we will also need to run through what exactly are equity shares. In general accounting terms, equity is referred to as the capital value of the assets that a company has, minus its liabilities. Assets include just about everything that adds value to a company, it is any resource that is owned or controlled by the companies themselves. There are plenty of different categories of assets but to simplify it all, let us just imagine that assets refer to all the money and property of a company. Liabilities would be all of the debts and obligations that the specific company is entitled to pay.

Once we subtract liability from the asset, we determine the relevant equity value. Understanding equity and the different types of shares is important as it is a numerical indicator of what percentage of the company you are entitled to receive. Your equity shares will commonly be referred to as your stake in the company that you have decided to invest in. To take a look at some of the best stock options out there, head to our buy Tesla stock, buy Apple stock or buy Facebook stock pages where we take a close look at each of these investment options.

When you have completed the necessary research to begin stock trading, you will see plenty of abbreviations that will be used in reference to the stocks you are looking to purchase with your trading account. You will need to know exactly what all of these abbreviations mean before you can commit to investing your money into them. Just about all of these transaction mechanisms will be in the form of a contract detailing the sale of the relevant asset.

CFDs

Contract for differences, or CFDs, is an arrangement made between brokers and customers that entitle the customer to receive the difference in price value between open and closing price value. This means that the customer will not individually be a shareholder or have ownership of the asset itself but will rather enter an arrangement to pay, or receive, the difference in price from opening the contract to settling the contract.

ETFs

Exchange traded funds, or ETFs, is a security that tracks a relevant asset, commodity or index and can be bought and sold just like typical stocks. ETFs are not stocks or shares but they behave about the same. An ETF provides anyone with the opportunity to use their trading account to trade a pool of commodities, bonds and even stocks.

Options

Options refers to the option you are given to buy or sell a specific stock at a defined price, on a set date. There are two types of options that you will come across, puts and calls. A put is the decision made by the customer assuming the price of the relevant stock will fall by the time the specific date arrives. A call is the opposite, this is the customer predicting the value of the stock to rise when the given date is reached.

Futures

Futures are similar to options, a predetermined date and price is set, but here the buyer is obligated to buy and the seller obligated to sell. This allows traders to speculate on prices of different stock options and it also serves as the basis of most hedging that is done within the industry. Futures and options can be powerful tools if used correctly and we recommend researching some strategies before committing to the instruments.

Once you have identified the options you are considering investing in, it is important to conduct the necessary research on those markets. You might find that your preferred investment choice is currently at an all-time high in terms of stock price and its past performance will indicate this is usually not the best time to buy. That being said, the company may simply be experiencing constant growth and you might want to invest in the future potential. You will need to research these opportunities thoroughly to try and avoid any potential losses. If you are considering making use of exchange traded funds, head to our what are ETFs page to take a look at the securities and how they are used.

When you have finished identifying your investment opportunities and do the research to realise that it is the right time to buy, you will need to consider which online broker to use to buy the stocks. There are plenty of brokers out there and you can make use of our reviews to find all of the details surrounding each of their services. Be sure to check out our page right here at Nextmarkets, we offer an online trading service with zero fees. You will also be able to access over 8000 different stock options while having a team of industry experts offering you advice each month. Head to our page now to find out more.

By now, you should have a thorough understanding of exactly what a stock is and why it has the potential to be a very powerful investment. Our team has also put together thorough descriptions of what shares are as well as equity shares. You will need to keep these definitions in mind when you are looking to buy shares. You will also need to research exactly what trading instrument you are using to buy your preferred stock, each of them has its own agreement structure and it is important to understand exactly what it is you are investing in.

Finally, take the time to identify your markets and research the opportunities that are available with each of them. This should increase your chances of making an informed decision regarding the stock prices, company’s shares you are purchasing, selling shares and help with avoiding any market volatility. Investors should keep our broker offer in mind when they decide to start investing, we have a service that is a cut above the rest within the online trading industry.