Question

Find any article about stocks and summarize please cite the source. 450 words

Answer 1

Stocks are a type of security that gives the stockholders a share of ownership in a company. Stocks are also known as equities. Stocks can be of two types – common stock and preferred stock. Holder of common stock has voting rights and the voting rights can be exercised with regards to corporate decisions. Holder of preferred stock does not enjoy any voting rights and hence they are not able to participate in corporate decision making. Preferred shareholders are, however, entitled to receive a certain level of dividend payments before any dividends are issued and paid to other shareholders in a company.

Stocks are a way to build wealth. When an individual buys the stock of a company the individual is buying ownership share in that company. Most people invest in stocks to earn a return on their investments. The returns can be made from two possible ways:

(1): Appreciation of stock’s price – When the prices of the stock that you own goes up you can sell them in the secondary market and earn capital gains.

(2): Dividend payments – Most of the stocks do pay dividends. Dividends are payments made to stockholders out of the profits of the company.

Companies can issue stocks through a process called IPO (Initial Public Offering). An IPO or an initial public offering is the debut of a company’s stock on the stock market. Popular stock markets and stock exchanges in USA are the New York Stock Exchange (NYSE) and NASDAQ. Once a company’s stock is listed in a stock exchange then investors can trade in the stocks i.e. buy and sell them between them. The primary reason why companies file for IPO is because through IPO they are able to raise a significant amount of cash and this cash is often used by the company to fund new projects, to fund the company’s expansion and in some cases even to pay off debts. A company can also make “rights issue” in future. A rights issue involves selling securities in the primary market by issuing rights to the existing shareholders. Besides IPO and rights issue many companies sell their stocks through private placement. Private placement and preferential allotment involve sale of securities to a limited number of investors like venture capital funds, banks, mutual funds etc. Companies can also issue stocks through preferential allotment. This is an issue of equity by a listed company to selected investors at a price that may or may not be related to prevailing market price.

Stock market consists of a primary segment and a secondary segment. New securities (i.e. IPOs) are issued in the primary market while outstanding securities (i.e. securities that are listed in the stock exchanges) are traded in the secondary markets.

(454 words)

Reference: https://handsonbanking.org/articles/about-stocks/