Today i will talk about what a stock trading is all about. I will explain what stock trading actually is and how people gain money out of it. This article is for total beginners, so if you know anything about stock trading already, this probably won’t be interesting for you. But for all the newbie’s, here we go…
Stock investing means to buy a share of stock ownership in a company. So basically you are buying a company, but since you do not have enough money to buy 100% of it, you buy only a small partition of that company. This entitles you to a small percent of a profit. This profit is called dividends. The profit is divided to each owner of a company and the amount you get is based on the percentage of your ownership in the company.
But dividends are not the only way you can earn the money in stock investing. If you study the economy strong enough, you can predict the growth of a company in advance and use this information to earn a lot of money. Let me explain it on example. We said that when you buy stocks of a company, you actually buy a small percentage of a company. Now let’s say that a certain company is worth 1.000.000,00 euros. You have to pay 100.000,00 euros, if you want to buy yourself 10% ownership in this company. Now let’s say you bought this share because you knew that this company is going well and that this company will gain on it’s value. In case you were right, you made yourself some profit. For example, this company have some money saved and decide to buy another company and as they merge together, your company (you own only 10% ) raise on value and is now worth 2.000.000,00 euros. You still own 10% and if you decide to sell your share, you will probably get 200.000,00 euros for it. There you go! You invested your money into a good going company and earned yourself some money.
But the situation could be opposite. Let’s say that this company lost one factory in a fire. This company is now worth only 800.000,00 euros. You still own 10%, so if you decide to sell, you will only get 80.000,00 euros. You lost 20.000,00 euros, because you made a bad investment, or with other words in this case, you just had bad luck.
This is it for now. I think i have explained stock trading in its basics. In case you haven’t know what it is before, i hope you know now. If you knew what it is before, sorry for taking your time