When you invest your money in the stock market, it means that you have made a contribution to the growth and expansion of the company and therefore, you are a shareholder in that business. The company raises an initial public offering (IPO) whereby the cost per share is determined by how much the company intends to raise as well as how many shares they are issuing to the public.
Once these shares are sold, they can be resold several other times to other investors within the stock market exchange. The company is no longer involved in these secondary transactions.
Reasons for buying shares
There is a perception that the worth of the company continues to change with time and therefore investors continue to trade with the stocks of a company based on increase or decrease of its worth.
It can be difficult to tell when the stock prices will rise or fall, but the best approach to invest in shares is to buy in different industries, also known as diversification and purpose to keep them for the long term gain.
You can also benefit from stocks investment by receiving dividends that are paid out to shareholders by companies that are doing well in terms of profits.
Once you become a shareholder in a company, you have voting rights which are equivalent to the number of shares you have. The voting rights include major decisions in the company as well as selecting the board of directors.
Reasons for selling shares
Every person trading in the capital market has their own reason for doing so. Some will trade with stocks that have gained value so as to make some profit from them. Others will sell their shares due to a perceived loss in value and therefore wish to get out before the value diminishes much further.
Volume is basically the number of stocks that have been traded in one day. A stock that has high volumes is an investment attraction for investors since that particular stock can be bought or sold as conveniently as possible.
Even when the volumes are low, it is still possible to trade even with few stocks as there are some companies that are expected to provide volume. Commonly referred to as market makers, these traders will be the last option buyers and sellers when no one else is trading. In this type of exchange, the price does not necessarily fluctuate and for this reason, most investors will opt to conduct their trade with stocks that have high trading volumes.
Raising capital is the primary reason for companies to issue shares and the stocks remain in the capital market for trading by investors in the exchange. Having some investment in shares is still a lucrative option since the prices generally go up in the long term. You also get to share in the profits of some companies when they pay our dividends to shareholders. Being a shareholder also gives you some voting rights in the company. The reason why most investors will opt to put their money in various industries is because there are chances that the stock prices could go down and therefore they spread their risk across several sectors. As long as there is volume, investors can exchange shares in the capital market at any time thereby reducing their losses or maximizing their profits as they please.