Frequently Asked Stock Trading Questions

The stock market is diverse, sophisticated, and not a walk in the park. To get good at trading in the stock market, you would have to take a few months studying and running mock trading accounts. Investors can speed up the process by working with stock investment advisers, although this would only perpetuate your learning curve. This article will cover a few frequently asked stock trading questions that people from across the globe often have.

1. What Do Buying Stocks entail?

Investors buy stocks from companies like KIA or Apple. When investors purchase stocks on the stock market, they become part-owners of the company. Investors usually do not have a say in how the company is run unless they acquire many shares. Companies aren’t always selling stocks. To sell stocks, a company has to approach the general public with an initial public offering, also referred to as an IPO. Before making an IPO, the company runs on funds contributed by private investors.

2. Which is better? Common stock or preferred stock? 

Investors are always on the lookout for the best stocks to buy for maximum return on investment. Common stocks are the typical stocks that we think about when we hear stocks; they include Apple and Coca-Cola. Common stock shareholders get a vote at shareholder meetings. The only downside to owning common stocks is shareholders get paid last in the event of bankruptcy. They would be paid after preferred stock shareholders, creditors, and bondholders.

On the other hand, preferred stock shareholders do not vote during shareholder meetings, although they get a dividend just like the common stock shareholders. Most investors prefer working with common stocks because of the rarity of large cooperate firms going bankrupt.

3. What are the types of common stocks?

Common stocks are classified into various categories which help investors predict possible returns, stock quality, and risk. Here are a few types of common stocks you can invest in

• Blue-chip stocks- best for regular gain and capital growth.
• Income Stocks- They have a higher rate of return and often have a strong balance sheet to support the same.
• Growth Stocks- Specific small and mid-cap companies experience a higher growth rate in earnings. They have little to no returns.
• Value Stocks- These shares have low market prices due to recent poor performance but a good long-term track record of making returns on investment.

4. What is the stock exchange?

The stock exchange is a platform hosting trading of stocks back and forth. The platforms provide a point of interaction between buyers and sellers. There are numerous exchanges in the world. It doesn’t matter which stock exchange you use to trade because the results are often the same.

5. What is an index?

An index is a group of stocks with a common theme. The Dow Jones Industrial Average is one such index comprising 30 US stocks like Coca-Cola, Caterpillar, and Cisco Systems. The Russel 2000 index comprises 2000 smaller stocks. Individual stock prices in an index play a crucial role in setting the overall price of the index. Investors use stock market indexes to judge the overall health of certain stock market sectors. The price of the Russell 2000 index is a great indicator for small caps stocks.

6. What are IPOs?

Initial public offerings are the first time a company sells its shares to the open market. A company goes public mainly to raise capital for further expansion into new markets. IPOs also give the public a chance to own a piece of a company they know. Whenever a company makes an initial public offering, the public can observe how the company will fair; will the stock prices rise or fall in the first few months? Usually, investors can judge the health of a company from the growth or drop in share prices. If share prices rise, the company is making money while the opposite could indicate a company’s poor health.