What are Stocks and Exchange Traded Funds (ETF)?

May 14, 2020

A stock is a type of security that denotes ownership in a corporation. There are two conventional types of stock: common and preferred. Common stock normally entitles the owner to vote at shareholders’ meetings and to receive profits in the form of dividends. Stock trading is regulated by the government and occurs on designated exchanges and networks of broker dealers.

An Exchange Traded Fund (ETF) is a type of security that is traded like a stock. ETFs do not denote ownership in a corporation. ETFs can represent a basket of securities or a number of different investment types such as industry sectors, commodities, international currencies, fixed income and others.

Stocks and ETFs are traded in shares, and the price of those shares are influenced by the supply and demand on a stock market as buyers and sellers place orders. Company performance, news, changes in management and other external news and economic events can all affect the desirability and thus the share price. For example, having more sellers than buyers in a market will drive the price of the stock down.

To buy a stock you need to start by opening a stock brokerage account and placing funds into the account. You will then need to learn how to place orders through your brokers order entry tools, learn how to track your profit or loss and learn how to close your stock position.

You can also sell stocks you do not own. This is called short selling and allows you to profit when you think a stock is going to go down in price. Selling short involves increased risk and fees. Your broker will require you to open a margin account to sell short stock.

Learning which stocks to buy or sell and when to buy or sell, when to hold your position and when to close your position is a science all to itself.

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