Investing in stocks
First of all, an investor must precisely know what is a stock, if he wants to invest in stocks. Stocks signify a part of holding of a corporation. Stocks are also known as equities or shares.
There are two main types of stocks: common stocks and preferred stocks. Common stocks have voting rights and the owner of this stock receives dividends. Preferred stocks does not have voting rights, but they receive dividends, too. The amount of the dividend can change at common stocks. Preferred stocks have a fixed dividend. Holding a common stock is more risky, because common stocks can receive more or less dividend. Moreover, preferred stocks have a priority. For example, the corporation is heading to bankrupt, then preferred shareholders are going to be payed first and later on the common shareholders.
Shares are traded at two different markets: primary markets and secondary markets. Primary markets are those places, where corporations sell their shares to investors. Corporations get money for example for a new investment and the shareholders get an ownership of the company. Secondary markets are those places, where investors sell the stocks to other investors, so in this event the corporation does not benefit from selling the shares.
It is possible to buy any amount of shares, but most of the investors buy only round lot. Round lots are those amount of shares, which are able to divide with 100. For example, 100, 200, 2300, 34500. Odd lot is a number of shares between 1 and 99 (for example: 8, 23, 71). Mixed lots consist round lots and odd lot, for example 144 shares.
Three positions can be hold with stocks. Long, short and flat position. A long position is, when an investor bought shares. For example, someone bought 10 Microsoft shares, then he has got 10 Microsoft long position. Short position is when an investor sold the equities first and later on he is going to buy them back. Selling a stock means that the investor thinks, that the price of the shares is going to drop in the future. Flat position is, when the investor closes his position, sells when he bought and buys when he sold the shares.
