A lot of people are afraid of investing in the stock market. The two bear markets that have previously happened in this millennium frightened those with little stock trading experience, while “hot tips” enticed those who were seduced by the promise of big returns but failed to deliver on their promises. So it’s no surprise that the pendulum of investment sentiment swings between dread and greed.
When addressed in a systematic manner, investing in the stock market can be one of the most effective ways to enhance one’s net worth. Affluent and very wealthy people tend to invest their fortune mostly in equities, whereas most people’s net worth is largely based on the value of their homes. 1 Let’s start with a look at what a stock is and what kinds of stocks there are in order to better grasp how the stock market works.
Important Points To Keep In Mind
Equity in a corporation is represented by shares, which confer voting rights and a claim on the company’s earnings in the form of capital gains and dividends on shareholders who hold them.
On stock exchanges, individual and institutional investors come together to purchase and sell shares.
Market forces determine the price of stocks as buyers and sellers place their orders.
Specialists or market makers often control order flow and bid-ask spreads to create a fair and orderly market.
Companies may benefit from increased liquidity and the opportunity to obtain capital if they list on exchanges, but this might come at the expense of additional fees and regulations.