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How Does the Stock Market Work – Basic rules of Stock Market for Beginners


Stock markets can be daunting for a new investor. There are numerous stocks and large amount of information is delivered by the internet and financial media. There are innumerable strategies to make profitable investments and analyse markets.

Stock exchanges aid in trading of stocks between sellers and buyers. A company needs to meet the eligibility criteria, to be on the stock exchange list. Stock shares are ownership chunks of a firm. Investors can buy and sell shares through the stock exchange markets where every stock is listed. Apart from the usual stocks, there are other types of securities trade in the stock market.

Exchange traded funds (ETF’s) and closed end funds are traded in the stock markets.

Exchanges execute trade in two ways:

  • Electronically
  • On the exchange floor

Decide on the Right Stock:

Common stock and preferred stock are different types of stock. When a person owns a stock, it refers to common stock. His dividend is guaranteed. He gets to vote for the board members. The common stock holders are paid if the company goes bankrupt.
A person who owns preferred stocks has ownership rights in the company. They receive dividends only if the company decides to do so.

The common stock holders are paid if the company goes bankrupt.

Every company decides the type of stock it wants to offer. Both common and preferred stocks have stock classes. They are designed to limit power to a certain group of investors. Talk to your broker prior to the stock purchase.

Purchasing Stock:
You can purchase stocks through brokerage firms. There are discount brokers and full-service brokers. You can consider using a full-service broker if you are new to investing as they offer investment advice besides purchasing and selling stocks. If you have some experience in investing, you can go in for a discount broker. They cost you low. They don’t offer investment advice.

Consider Stock Market Risks:
There is no guarantee that a company would pay the preferred stock holders even when its performance is high. The stock holder can earn only through the appreciation in the stocks.

Do not invest in a single stock. Diversify your investments. The shares of one company may not perform well during certain times, but if the stock price of the other company whose shares you have bought is doing well, there is still chance of benefits. Carefully choose your investments from various sectors and companies.


Author Bio:
Maria Benson is a freelance writer. She is currently researching on PPI claim. Maria Benson was fascinated towards finance and politics and she wrote many articles on those classes. Her hobbies include browsing various category blogs and painting. Maria Benson loves travelling, cooking and watching movies.



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