Basically, a tiny piece of the share capital of a corporation is known as a stock and people who buy the stock investing in the future of the company are known as share holders and they remain so, as long as they own the shares. The factors that decide the price for the shares are the economic conditions of the country, the investor's attitude and the performance of the company.
The first time a company "goes public" is the time when it offers its stock for public sale and is known as initial public offering or IPO.A dividend is the share in the profit the stockholders get when the business makes a profit and frequent dividends issued are income stocks and stocks that are reinvested to make improvements in the company are growth stocks.
A person who is licensed to trade stocks through the stock exchange is known as a stockbroker who buys and sells stocks through an exchange. He can either be on the trading floor or can make trades electronically or through phone.
Any person who owns a computer, with internet connection has enough money to start an account and has a good financial history could own shares and do online trading. There is no compelling need for a stockbroker or a fortune to do online trading because the market has become more accessible. In an online trading, instead of talking to someone about investments, the person decides which stocks to buy and sell and requests the trade. Sometimes, online brokerages offer advice from live brokers and broker -assisted trades, which is a part of their service. Apart from buying and selling stocks, it is possible to make a number of other investments online, depending upon the brokerage. Even participating in IPOs can be done for some firms.
Some companies allow trading in options (which is a contract giving the right to buy and sell stock on or before a specific date at a specific price), mutual funds (combining many people's money and investing in a range of companies), bonds (loans that are repaid along with interest by companies and businesses) and futures (which is an agreement to buy or sell a stock at a future date). But options and mutual funds are well suited only for experienced investors.
Online trading has significantly contributed to the growth in trading volume. Transaction costs have reduce after the introduction of online trading and brokerage commissions for online trading are lowered due to price competition. On top of all, because of online trading, individual investors have an easy and speedy access to the market information and the securities market -related websites have increased rapidly which provide a lot of information including quotation, corporate disclosure, research papers, and financial information on a real time basis. Thus, online trading contributes to the alleviation of the information among market participants between the individual and institutional investors.
Although online trading has many positive effects, there are certain disadvantages too. Due to online trading, day trading has increased the volatility of the prices and some large investors attempt to mislead the investors by placing fake orders. On line trading has increased the extensive use of Internet by investors and also unconfirmed rumors are floated on the cyber space. Even though on line trading has increased in leaps and bounds in volumes, the same cannot be said about the profitability of securities firms.