Stocks represent ownership shares in a company.
When you buy stock in a company, you are buying a piece of that company, including a portion of its assets and earnings.
The purpose of issuing shares is to raise funds to fund operating activities.
A company can issue two types of stocks:
- Common shares
- Preferred shares.
Common shares
Common stockholders generally have the right to vote on corporate matters, such as the election of board members and company policies.
After the company repays its debts during liquidation, common stockholders are ultimately entitled to the company’s remaining assets.
Preferred shares
Preferred shareholders generally have no voting rights, but have higher claims on earnings and assets.
This means that preferred shareholders will receive dividends before common shareholders, and if the company liquidates, preferred shareholders will also receive any remaining assets after the debtor first.
Light Pool and Dark Pool
Stocks are bought and sold on “clear pools” and “dark pools”.
Public stock exchanges where order books are publicly displayed and available to all participants are called “Ignite Pools”.
This means that traders using Ignite Pools can use the order book to see how much liquidity there is for buying and selling of a security. This can be used to determine short-term trends in stocks.
Dark pools are private markets available only to institutional buyers. “Dark pools” are the name given to these secretive exchanges, also known as “alternative trading systems” because they are not open to the public.
The main difference is that dark pools do not have a public order book or display of the price that buyers or sellers are prepared to pay, while bright pools do.
Supply and Demand
The price of stocks is determined by the supply and demand relationship in the market.
Factors such as company earnings, economic health, market sentiment, and geopolitical events can all affect stock prices.
How to Profit from Stocks
Stock trading is a way for investors to grow their wealth over time.
Traders can profit from stock ownership in two ways:
- Dividends
- Capital Gains.
Dividends are a portion of a company’s earnings distributed to shareholders. Capital gains are profits made when an investor sells a stock for more than the purchase price.
Investing in stocks also has risks. If the company goes bankrupt, the stock you own in the company could lose value or, in a worst-case scenario, become worthless.
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