What is a Stock?
Updated
by Justin Ling
Stocks (Equity, Shares)
Stocks also called Shares or Equity represents fractional ownership in a company listed on the stock market.
When companies want to raise money to expand their business, one option is to use the Stock Market. Known as "going public," companies divide the ownership of the company in many parts (most companies have over 100M shares). This way they can sell each part (stock) to people who believe in the future of their business, and use that money to grow the business.
When you buy stock of a company, you become an investor in that company. If the company does well, you'll profit, if it decreases in value you'll lose money.
You buy and sell stocks on the stock market.
The Stock Market
You can think of the stock market like a huge market place, where people are buying and selling stocks.
Buying & Selling Stocks - The Auction
In this marketplace, stocks are bought and sold auction style, with bidders and askers.
BID: Shows the highest price the buyers will buy for
ASK: Shows the lowest price the sellers will sell for.
When there is a match between the Buyers and Sellers a Trade is made:
Reading the Rest of the Trade Modal
Stocks Owned / Cash Available
This section shows if you already own the investment, and how much cash you have available to spend.
Trade Actions
This section is where you'll decide your outlook for this investment.
Buy: Use if you believe the outlook of the investment is positive; [you profit when the investment increases in value].
Short Sell: Use if you believe the outlook of the investment is negative; [you profit when the investment decreases in value].
Order Type
Here you'll indicate the method in which you'll place your bid / ask request in the auction.
Market order type means, you'll buy / sell / short-sell at whatever the current auction price is.
It ensures your trade is placed immediately, but is risky for unregulated investments with a small amount of buyers and sellers, as you could get ripped off on the price.
There are several methods you can use, but let's just stick with market for now. We'll teach you the other methods as you continue to advance your learning.
Price & Quantity
The price is what you'll be expected to pay or sell for at the current market place (in a market order type).
The Quantity, is how many stocks/shares you are purchasing. The more conviction in your outlook the more money you'll want to put behind the idea.
Transaction Fee
To place your trade, the facilitator usually charges you a fee per trade. We've put this into the simulation to ensure the experience is realistic.
Place Order
Hit place order, and you'll trade will be processed.
