Understanding What Stocks Are And How They Work

What is stock? And how does it work? There are several investment instruments that you should recognize, namely gold, deposits and stocks. Each has its own pluses and minuses. But this time we will discuss and understand stocks and how they work for profit.

Definition of Shares According to the Indonesia Stock Exchange (IDX)

Everyone can trade shares, even with minimal capital. Just understand how it works. So what is a stock? According to the Indonesia Stock Exchange (IDX), shares are a sign of equity participation in a company or Limited Liability Company.
In short, shares are proof of ownership of a company or business entity. So, do not be surprised if shares are also referred to as securities. If you want to explore the world of stocks, then you also have to understand what types of stocks you can buy and sell in the stock market.

Types of Stocks in the Stock Market

There are two types of shares outstanding in the stock market. Both have their own pluses and minuses. Both types of stock that is;

Common Stock (Common Stock)

The function of common stock is as proof of ownership of a company. The shareholder is entitled to receive a portion of the dividend (income) and is also responsible for bearing the risk of loss to the company.

Preferred Stock

The function of preferred stock is as evidence that the owner of the stock has higher rights than the owner of the common stock. This means that when dividends are distributed, the owner of the preferred stock takes precedence.
And if the company is liquidated, the owner of the preferred stock will also have priority to get a return on investment. In addition, the owner can also exchange it for common stock.

The Most Popular Way to Get Stock

There are several ways to be able to own shares, apparently not just by buying. Here are some ways:
Distribution of Shares for Employees of a Company
Many companies provide company shares to their employees, as a bonus or incentive. It aims to increase loyalty against the company.
But usually there are additional rules where the shares may not be sold to other parties, except for the company itself. Thus minimizing other risks.

Purchase of Shares during Book Building (Before IPO)

Ahead of the IPO, many companies will be listed on the stock exchange and cooperate with securities companies to distribute company prospectuses.
If you value a company has a good prospectus, you can buy it. The method is as follows:
Open a securities account with the related securities company.

Say that you will order shares to be IPO.

Buying and Selling on the Stock Exchange

Before starting, you must also have a securities account through a securities company. The difference with point number 2 is that in the Stock Exchange, your time to buy and sell is anytime during the working hours of the exchange.

How Stocks Work in Giving Profit

In simple terms, the shareholder is one of the owners of the company. So if the company gets the shareholders also benefit. And here is how profit sharing (calculated from net income) works:

Capital Gain

Capital gain is the growth in the value of assets and capital. So the stock is like a gold certificate. If the price of gold rises, then the difference between the buying and selling prices is called a capital gain.

Dividend

Dividend is a profit earned by a company.

Of the two ways of working above, shareholders prefer capital gains because it is considered faster and easier. Reasons Why You Should Invest in Stocks
Small capital. The initial capital you need is 5 million. The greater the capital will be directly proportional to the large profits. However, still be careful.
Online trading. So you can make transactions anywhere and anytime (during stock exchange operating hours).
Flexible. You are not bound by time to make stock transactions.
Minimal risk. With a note if you invest in a good and healthy company.

Profit big.

So have you started to understand what a stock is and how it works to make a profit? Have you prepared the capital to start your first step?