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Understanding Stocks

A stock is a security that gives buyers partial ownership of a company, distributed in the form of a share. If the company does well and stocks go up, buyers can sell their shares of stock for a profit. On the flip side, if the company does poorly, stock prices will go down and buyers will lose money on their investment.

The two main types of stock are common stock and preferred stock. Common stock is what most people are referring to when they discuss stocks; if you purchase common stock, you own a portion of the company and receive dividends on the company’s profits. The main difference between preferred stock and common stock is that preferred stockholders usually receive a guaranteed, fixed dividend, whereas common stockholders receive dividends based on the company’s profits.

To learn more about stocks and other forms of investments, browse GOBankingRates’ articles that feature expert advice to help make your decisions easier.

FAQ

Here are the answers to some of the most frequently asked Stocks questions.

When you first start out buying stocks you need to open a brokerage account, either with a firm or online, which will allow you to buy, sell and monitor varying investments. These can include stocks, bonds or mutual funds. If you are a beginner investor try to avoid buying individual stocks and focus on diversifying your portfolio.
The stock market works by essentially assisting companies to sell shares of stock which in turn raises money to fund company operations. This also helps grow wealth for investors who buy equity stakes in that company which are known as shares of stock.
When a stock price drops, rest assured the money does not necessarily disappear, especially for long-term investors who don’t make any transactions. For short-term investors, the money is transferred as a zero-sum game among them. In other words, what you lose is someone else’s gain just as much as when you gain it often from someone else’s loss.

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