Most people often consider the stock market as a foreign and overwhelming subject. While you may already know the importance of the stock market as a wealthy building tool, chances are you might still be clueless about where and how to get started with your investment. Read on below to get a good overview of the stock market.

What is the Stock Market?

Stock market is a term encompassing the collection of markets and exchanges where regular issuance, buying, and selling of the publicly held companies’ stocks take place. When you speak of the stock market, it pertains to publicly traded stocks that are available for everyone to buy.

Stock exchange and stock market are usually used interchangeably although these two are not the same thing at all. The stock market is composed of the world’s different stock exchanges. The London Stock Exchange, the Tokyo Stock Exchange, and the New York Stock Exchange are some of the major stock exchanges of the world.

The stock market is composed of traders and investors who often have varied perceptions regarding a specific stock’s value. A stock exchange offers these people with a good platform where it is possible for them to trade the stocks.

Stocks – What are They?

Also called equity, a stock is a corporation’s unit of ownership. The moment a company has gone public, investors are given the chance to buy a portion of the organization. It entitles the owner of the stock to a part of the profits and assets of the organization that is directly proportionate to their owned stock. Stock units are known as shares.

Aside from getting a part of the profits, there are also some shareholders that are entitled to the right to vote when electing the board of directors.

Finally, shareholders can also take advantage of limited liability. It means that once the company has lost a lawsuit or gone bankrupt, there is a possibility for your stock to become worthless. However, no one is going to chase you to garnish your assets.

Rewards and Risks of Stock Investments

It can be quite lucrative to invest in stocks because this can give you more money much faster compared to just letting your money sit in your savings account. For instance, a high interest savings account or HISA currently has an average interest of around 0.6 to 0.8% annual percentage yield or APY. On the other hand, the stock market has a 10.83% average return on investments. With these figures, you can easily see the stark difference of these two options.

But, just like anything else that provides the chance earning a substantial financial gain, risks are also involved here. There is always the possibility that you will lose the money you are investing and this means that you have to be wise and smart when it comes to your choices in investment. In general, investing for long-term is a better option due to higher risks involved in short-term investments.

Now that you have some idea about the stock, make sure you always do your research first before you decide to take the plunge.