Stocks trading

Topics: Stock market, Stock, Over-the-counter Pages: 11 (2780 words) Published: June 21, 2014
Stock trading has become one of the most popular and efficient ways to make money since it is easy to access and it could bring a lot of money back to investors. With some extra money, anyone can purchase stocks from a company or corporation and make profit. A stock is basically a type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings. There are two main types of stock: common and preferred. Common stock usually entitles the owner to vote at shareholders' meetings and to receive dividends. Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares. Owning a stock means that a stockholder (person that owns the stock) has a claim to a part of the corporation’s assets and earnings. We could say that shareholders are owners of a corporation. Ownership is determined by the number of shares a person owns relative to the number of outstanding shares. The higher number of stocks a person owns, the more benefit he/she will get. People that purchase stocks would have the following advantages and disadvantages: Advantages:

-They would be able to gain a large amount of money
-The potential loss from stock purchases with cash is limited to the amount of the initial investment. -Stocks offer limited legal liability
-Most stocks are very liquid (they can be bought and sold quickly at a fair price) -Investment diversification (purchasing stocks from more than one company could reduce the risk of losing money) Disadvantages:

-Since common stock represents ownership of a business, stockholders are the last to get paid, like all other owners. A company must pay its employees, suppliers, creditors, maintain its facilities and pay its taxes. Any money left can then be distributed among its owners. -While shareholders are company owners, they do not enjoy all of the rights and privileges that the owners of privately held companies do. For example, they cannot normally walk in and demand to review in detail the company’s books. - Investors in a company may not know all that there is to know about the company. This limited information can sometimes cause investment decision-making to be difficult. - Stock prices tend to be volatile. Prices can be erratic, rising and declining quickly. Such declines often cause investors to panic and sell, which actually only serves to lock in their losses. - Stock values can sometimes change for no apparent reason, which can be quite frustrating for the investor who is trying to anticipate the stock’s behavior based on the actual performance of the company. Stock trading seems like a good step to take for any investors and there is nothing wrong, at all. However, there are some problems that come along with those advantages. Two unethical problems of stock trading that are the most easy to be spotted are: -Insider trading: According to the U.S Securities and Exchange Commission, insider trading is a term that most investors have heard and usually associate with illegal conduct. But the term actually includes both legal and illegal conduct. The legal version is when corporate insiders—officers, directors, and employees—buy and sell stock in their own companies. When corporate insiders trade in their own securities, they must report their trades to the SEC. Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include "tipping" such information, securities trading by the person "tipped," and securities trading by those who misappropriate such information. According to the article “Insider trading: Why We Can’t Help Outselves” on the Wall Street Journal published in April 2nd 2011, the SEC investigated a multiple of high-profile insider trading...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Insider Trading Essay
  • Codification: Stock and Fair Value Essay
  • Trading Places Refutation Essay
  • Stock performance Essay
  • Stock Exchange and Electronic Trading Essay
  • Current Issues of Algo Trading Essay
  • Stock Trak Essay
  • Stock and Cherry Essay

Become a StudyMode Member

Sign Up - It's Free