Basic Introduction to the Stock Market

by Contributing Writer

Overview

Basic Introduction to the Stock Market

Investing in the stock market can be a risky business. Understanding a few things about it can help you decide whether to invest in stocks.
Identification

A stock is a partial share of ownership in a company that has chosen to make its stock available to the public. When you purchase a share of the company via its public offering of stock, you in essence have become a part owner in that company. Corporations do this to raise capital.

Profit or Loss

The idea is to buy low and sell high. If you purchase a share of stock for $10 and later sold it for $20, you profit $10 on that one share. If the price goes down to $5 per share and you sold it, you lose $5. It is possible the stock may become worthless, in which case you would lose all of your original investment.
Research

The best way to limit the amount of losses you could suffer investing in the stock market is to do your homework. Many people will use the advice of a stock broker when purchasing or selling stocks. A stock broker is the person who actually executes the orders to buy and sell as per your wishes. Remember, fees and commissions apply.
Money and Time

To make money in the stock market, you must have the money to invest and time for it to work for you. Those who buy stocks and hold them for a longer period of time stand a better of chance of making a return on their investment. Buying and selling stocks frequently increases the risk of losing money.
Warning

Understand what you are doing and the risks you are taking before you invest money. Only invest as much money as you can afford to lose.