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The first step in understanding the way the stock market works is to know the meanings of the basic vocabulary words.words such as shares and equity are frequently exchag.even though they may be used in place of one another they still have different meanings.in reality when buying stock of a company a person is actually buying ownership of a piece of that particular company.a person can say that he owns stock in coca cola.”  This would mean that you own a sliver of the Coca Cola company.

how many shares you hold equals to the amount of company that you hold.  Perhaps you hold a single share of stock, or perhaps you have one hundred shares.the number of shares of a stock that you have translates into a bigger piece of the company.  

when discussing stocks or shares equity is a word that come up often.a company normally has two options when looking to raise capital , this helps in understanding equity.consumers are most familiar with the first way which is the option to go into debt.an alternate way is to raise finance through equity.what this means is that instead of going into debt the company sells portions of the company to pay off debt.  Instead of going into debt, they let investors buy into the company, and the money from the investors is used to finance the company needs.  To put it simply, when an investor buys shares of stock, they are investing in the equity of the company.  

increase in value of the stock is a risk taken by investors in order to earn a profit.once the value goes up profit can be earned by selling shares to other investors.  The profit on stock has no limit, and continues to grow as long as the value of the stock increases.there is an element of risk involved as along with increases in the value of shares decreases can also take place.  When that happens, investors lose their investment.  

Another word that is often used when discussing investments is the word bond.when a company issues bonds what it means is that they are financing using debt.  People who buy bonds, are loaning their money to the company, and the bond is actually a contract that guarantees the company will repay that debt on a set date.Less risk is involved with the purchase of bonds but the potential profit margin is also reduced when compared to buying stock.a predetermined amount of interest is the profit that is made on bonds.  

the value of any given stock is taken by the ecnonomic principle of demand and supply.  If the stock is in high demand, and many investors are fighting to buy every share that becomes available, then the price of that stock will go up.  On the other hand, if there are plenty of shares available and nobody seems to want to buy then the value of the stock drops.

this is a simple analysis of the stock market vocabulary.  For a more in depth look, visit Traders International.

Tags: investing, stock market, stocks, Traders International, value