Candlestick Trading Blog

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Stock Market Investment Basics for New Investors

As companies grow and would like to continue to expand their business they may opt to pool their money or to obtain loans in order to raise funds. The stock market investment basics tell us that they must make a choice. They can either organize their company as a sole proprietorship, a partnership, and later perhaps a corporation. Once the company chooses to incorporate, the investment risk changes and the owners are no longer personally responsible for nor are they liable for any debts of the corporation if the company fails.

What then happens is the corporation issues a stock certificate, which is basically an official document that represents ownership of the company. Each stock certificate represents a set number of shares and the total number of shares varies for each company. The corporation must then decide how many pieces of ownership they will divide the corporation into. The investment strategy behind these corporations that do this is to sell stock (of their company) to raise money that will provide additional funding for expansion of their business. They sell pieces of ownership in exchange for cash and therefore create shareholders. (Corporations are not allowed to sell shares of stock on the open market without the approval first of the Securities and Exchange Commission (SEC). The stock market investment basics behind this strategy tell us that their remaining share of stock that was not sold to the public will become more valuable as the business grows. A board of directors is established to represent the shareholders, including a president, vice president, and secretary- treasurer.

The two types of stock that are issued include common stock and preferred stock. Common stock is just standard shares issued by a corporation and most stocks that are traded are actually common stock. Preferred stock is issued without voting rights and it is a special class of stock. Preferred stock promises a fixed dividend and if the company is forced to liquidate, the preferred shareholders are the first to receive any leftover proceeds. It is for this reason, and others, that many conservative investors opt to invest in preferred stock. Those who buy stock actually own part of the company meaning that these stock holders can actually vote in annual shareholder meetings and they have a right to a share of future profits.

Stock market investment basics also tell us that a stock's price movement is a result of supply and demand. This is what directs the stock market movement everyday. The supply represents the number of shares that are offered for sale at any one moment, whereas the demand is the number of shares that investors are willing to buy at that one moment. If investors want to buy a particular stock and are willing to pay more, the price will increase, and conversely, if the investors are selling a stock at a particular price and there are not enough buyers, then the stock price will of course go down.

There is obviously a lot more to investing in the stock market, then the stock market investment basics discussed in this article, but you have to start somewhere. If you are interested in earning a living by investing in stocks, continue to learn about the ins and outs of the stock market, and about the different types of trading methods and analysis.