The stock market is key when it comes to economic growth, both for an individual and to the whole country. Investing in stock market is one of the best ways to earn passive income. However, it can be risky as one may lose a lot in the quest to make profit. Investing in stock market requires you to be well equipped with knowledge and understanding of the market, even if you intend to engage a stockbroker.  Here are some guidelines to help you understand the stock market

What is the stock market?

This is where trading of shares of different corporations occurs. The shareholders are able to own part of the company at a certain rate specified by the company, while the company is able to raise capital for expansion through the money brought in by the shareholders. The shareholder, being an investor in the company, enjoys benefits such as the risk that comes with entrepreneurship is reduced for them. They can also choose to invest in multiple companies as a way of diversifying their portfolio. This is a way of managing risks.

The stock market can be broken down into

  • Primary market – This is where the stock is first sold. If for example a company is going public for the first time, their shares will be sold on this market.
  • Secondary market- All other trading activities after the first one are done here.

What are the different types of stocks?

There are different types of stocks available in the market. They are

  • Common stocks – These are shares that entitle the shareholder to dividends and voting rights during the election of board members.
  • Preferred stocks- The shareholder owns a part of the company just as in common stocks. However, the shareholders do not have the same voting rights as common stock shareholders. However, they are given first right over dividend and cash during liquidation of company.

Even though these are the most common types of stocks, a company selling their shares can divide their shares in their preferred categories.  You can get information about these shares on stock market news or stock market blogs.

Now that you have knowledge on what the stock market is and what kind of shares you can purchase, it is important to know the reason for investing in stock market.

Why should you invest in the stock market?

Keeping money in the bank is a good way to save. However, the balance may change depending on the level of inflation. Investing, on the other hand, investing in stock is a long-term source of income. You earn dividends annually depending on the company you have invested in. Some companies issue dividends quarterly.

The prices of stocks change rapidly depending on demand and supply. Other things that affect prices of stocks include company news, investor’s confidence, political stability among others.

To get a better understanding of the stock market, it is wise that you read many stock market blog as well as follow stock market news keenly. This way you are able to know the emerging trends in the stock market.