How Does One Earn From Stocks?
How Does One Earn From Stocks?
You may have probably heard that the share of stock is a representation of ownership of a corporation and that the stock market is where the stocks are being traded. But you may have doubts as to the process of how the corporation breaks down its ownership into shares of stock. How are the stock prices calculated and who decides how many shares of stock there would be per corporation? You may have asked yourself why not all corporations are being traded in the stock market. More importantly, you may be wondering how you can earn from the stocks that you bought. If you are then here is a short introduction on stocks and how you can earn from them.
Not all corporations have publicly traded stocks. To be able to publicly trade the stocks of a corporation the corporation must first be a public corporation. To be a public corporation, the corporation must first register itself with the Securities and Exchange Commission, which is the foremost government body that regulates stocks and stock trading. The corporation must also undergo an IPO or an initial public offering. The corporation would be assessed to arrive at the total value of the corporation. The total value of the corporation determines the total shares of stock of that corporation and the stock price. For example, if the corporation is assessed to be worth $25 million it can have 25 million shares of stock at $1 each or it can have 25 shares at $1 million each. It is therefore the corporation that ultimately decides if it would go public and trade its stock as well as the number and price of the shares of stock it would trade.
There are many ways to earn in the stock market but in general, there are two ways of profiting from the stock market. This is through the EPS or earnings per share that the shareholder gets and through capital gains. The EPS stems from the fact that a stock represents ownership of a corporation. Once the investor buys the stock, he owns part of the corporation. As an owner, he earns as the corporation earns. The EPS is the shareholders share of the profits of the corporation proportional to the number of shares he owns. The EPS is received quarterly. Capital gains are the profit that the investor gets when he sells the stocks. The capital gains represent the difference between the stock price when the investor bought the stock and the price of the stock when he sold it.
Comments
You must be logged in to post a comment.