What are Stocks And How Do They Work ?

What are Stocks of a Company ?

Do you know what is stocks in simple words? It is just person's shares in the ownership of the company. When you buy a stock, you are essentially buying a small piece of that company. This means that you are entitled to a share of the company’s profits and assets.

Shares are traded on the stock exchange which are places where buyers and sellers can come together to buy and sell. 

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Why is Stock Market Important?

There are several reasons why people invest in stocks. Here are a few of the most common reasons:

  • Potential for Capital Gains
  • Many companies pay dividends to their shareholders.
  • Participation in the company’s growth.
  • It can be a good way to diversify your investment portfolio management.

How Does Stocks Work?

Let us understand the process how stock market works step by step?

  • Companies issue stocks to raise money.
  • Stock exchange are marketplaces where buyers and sellers can come together for share trading
  • If the stock price goes up, investors can sell their shares for a profit.
  • Some companies pay dividends to their shareholders.

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Impact of Stock Market on Economic Growth

Stocks are a popular investment for a variety of reasons. They offer income, diversification, liquidity, and growth potential. Which brings a positive impact on the economy.

Impact On CompaniesImpact On Investors
Raise money to grow their businessesPotential for capital gains and dividends
Improve their credit ratingsDiversification of investment portfolios
Can dilute the ownership of existing shareholdersCan provide a source of retirement income for individuals.

Stock in Business Example:

CompanyStock Symbol
Reliance IndustriesRELIANCE
Tata Consultancy ServicesTCS

Also Read: Risk Management Definition and Examples