The Fundamentals of the Stock Market

One of the best ways to interpret and analyze the stock market is by understanding the fundamental meaning of a stock and many stock market basics. To fully understand the meaning of a stock, for arguments sake, lets assume that Bob has a company named ARZ Inc. that sells mp3 players. This company that Bob has started up about a year ago needs capital to run its business. What Bob can do to raise capital is either take some money out of the bank or receive funds from other people who have a vested interest and see the potential of Bob’s company. These potential investors want a small ownership in the company

As the owner of his own own business, Bob will sell some parts of his company and he will accomplish this by issuing shares of ARZ Inc. to the general public. In this situation, to raise enough capital, Bob needs to sell twenty-five shares to four potential investors. The company has a total number of one-hundred shares.

The investors are on the other side of this agreement, and Tom is one of four potential investors. For arguments sake, Tom purchases the shares at fifty dollars a share. Two years have passed and ARZ Inc. needs more capital so they decide to issue a public offering where individuals can buy the shares of stock at a predetermined price set by the company. This price reflects many aspects of the company including its sales and revenue as well as future progress. The company may offer the shares at a heightened price of eighty dollars a share.

In reality, this is precisely what a stock truly is in the risky but rewarding world of stocks. Stocks that are issued by companies in the past were recorded on paper however, with the boom of the the computer era many brokerage institutions keep these same shares in an electronic system. Hope this will make your stock market basics very strong and you will trade as an educated investor.