What are Stocks?
Are you looking to trade stocks and shares? Want to catch the next big move on the Global Stock Market?
Well you will need to know exactly what stocks and shares are first. We’re sure you’ve heard of different stock markets around the globe and 99.9% of people will be able to name a handful of listed stocks. But in this article we are going to walk you through what they actually are, take a quick look at the FAANG stocks and give you some insight into dividends and voting rights.
But firstly – What are Stocks and Shares? Well, the first point to note is that they are actually 2 separate things. So lets differentiate the two:
- Stocks – This is the term used to explain the piece of ownership of a company
- Shares – This is the term used to describe the ownership of a company (A share is also the smallest denomination of a stock)
Barely different right? In fact, not many people know the difference and to be honest there’s not much of difference to worry about. When traders talk about what they’ve invested in, they may refer to it as trading shares, trading stocks or even trading stocks and shares.
So we know that that ‘Stocks and Shares’ are a way that we can describe ownership of a company. If you buy a particular companies stock – then you become a shareholder. What does this mean?
If you are a shareholder of a company it simply means that you own a part (albeit usually a small part) of that company. This means that you are open to the upside and downside momentum of the price of that stock. It may also mean that you are entitled to things like voting rights and dividends. But these depend on which stocks you buy (Some may not pay dividends or have voting rights attached)
The shares that a publicly traded are listed on an exchange. Think of this a marketplace where buyers and sellers come together to buy and sell each stock. The Stock Exchange in London is aptly named ‘The London Stock Exchange’ and it is one of the oldest exchanges in the world.
When you purchase a share, you physically own part of the company when purchased the conventional way on an exchange. However, in more recent times you can trade CFDs of Stocks or Spread-Bet on stocks. When you trade via these two methods, you don’t actually own the stock. Instead you are just taking a contract on the price differential of the Open and Close price of your trade.
So why do companies list their shares on Stock Exchanges? This is a way for them to raise capital so they can further their growth and development. If you purchase shares in one of the companies that succeeds in doing this – you share in this growth conveyed in the share price.
When you see the price of a share listed on exchange you will see that they have two prices. The Bid and the Offer. You as a trader will Buy at the Offer Price (the price on the right) and sell at the bid price (The price on the left) This is known as a 2 way price.
If you sell your shares for more than you bought them for – you’ve made a profit.
As the old trading saying goes – “Buy Low – Sell High!”
When you’re all set and happy with the question – ‘What are Stocks?’ – Please click here to open your trading account.
What are Stocks: What is a Dividend?
When companies perform well they earn more money. Certain companies may decide to share their earnings with their shareholders by way of something called a ‘Dividend’.
There are a couple of ways the dividends can be paid to shareholders. Firstly, the firm may decide to pay out their annual dividend as cash. However, not all companies operate in the same manner and some may choose to pay out in shares rather than cash (These shares are obviously added to your existing shareholding)
Dividends will vary in payments cycle from firm to firm. They could be quarterly, Bi-Annually, annually or they could pay out a ‘Special’ dividend. Usually these are paid ad-hoc when a company is doing particularly well.
There are a few dates traders looking for dividends need to keep in mind. The announcement date (when the divi gets announced) The Record date (cutoff to know who’s getting a divi), Payment date (when divi will be paid) but most importantly the ‘Ex Dividend date’ Any traders looking to benefit from the dividend will need to be a shareholder before this date passes or they wont receive a dividend.
You may ask – Does a dividend payment affect the share price? And it’s a good question. The answer is yes. Usually when a dividend is announced, the share price will rise by roughly what the dividend payment will be. And on the ex dividend day the share price will drop by around what the dividend payment will be.
So Dividends are a great way for shareholders to increase their gains. If the company is doing well, you’d like to think the shareholder would’ve benefitted from an increase in share price. Then on top of that you may also receive extra gains by way of a dividend. The dividend is the company’s way of saying ‘Thanks for investing your hard earned money into our company!’
What are Stocks: What are Voting Rights?
Not all shares listed on exchanges give the owner the right to vote. But if they do, this gives the owner the right to vote on specific company dealings and decisions like mergers, dividends or large changes to the daily operations of the company.
If I were a shareholder of company X and I had 100 shares – Then I effectively have 100 votes. I can vote myself or I can get some to vote for me by way of a ‘proxy vote’. If a shareholder owned 60% of a company – then they already have the majority vote and can make all the big decisions themselves. This is called having a ‘Controlling Interest’ in the company.
These votes are usually done annually at the AGM (Annual General Meeting)
The types of shares that carry voting rights are called ‘common’ stock and the ones that don’t are called ‘preferred’ stock.
What are Stocks: What are FAANG stocks?
You may have heard the term FAANG being banded around – On the news, in the Financial Times or just overheard it in a coffee shop. But what does it mean?
FAANG is just an acronym to describe a group of particularly large tech stocks (Amongst the largest companies in the world). You’ve probably heard of a couple of them….
- FaceBook (FB)
- Apple (AAPL)
- Amazon (AMZN)
- Netflix (NFLX)
- Google (GOOG)
This group of stocks increased incredible growth from Feb 2018. The moves in these stocks are so important that they have a large effect on the stock market as a whole. The large moves have also prompted people to say they are trading ‘in a bubble’.
The codes at the end of each of the stocks listed above are known as ‘Tickers’. These are used to identify individual stocks and provide updates on price movements or ‘ticks’. You will often see these tickers on Bloomberg or in your favourite financial paper!
If you’re ready to join the millions of global traders and investors in the Global Stock Market, please click here to open your account today.