Stocks Purchase or Sale
Stocks represent a share in the ownership of a particular company and includes a certain claim on that company’s earnings and assets. Consequently, stockholders are considered partial owners of the corporation. The amount of shares that a shareholder acquires represents their proportionate ownership in the issuing company. Stocks are predominately bought and sold through stock exchanges, such as the New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASDAQ). Corporations often issue stock as a way to raise money for the company. While companies can issue new shares whenever there is the need for additional capital, this process often dilutes the ownership and rights of existing shareholders. Companies can also participate in stock buy-backs where they buy back stock, often to the benefit of existing shareholders as their shares appreciate in value. Some stocks also issue dividends. A dividend is the distribution of payment made to shareholders as a portion of the company’s earnings. Although dividends are decided by the board of directors, they must be approved by voting shareholders. There are two main types of stocks that can be issued: common stock and preferred stock. Common stock typically allows the holder to participate in receiving dividends and voting at shareholder meetings. Meanwhile, while preferred stockholders do not normally hold voting rights, they do have a higher claim to the company’s assets in the case of bankruptcy and the distribution of dividends.
Frequently Asked Questions About Stocks Purchases or Sale
What is a stock split?
A stock split is an action taken by the issuing company in order to divide its existing shares into multiple shares. This action increases the total amount of shares and decreases the price per share. However, while the number of shares outstanding increases, the total dollar amount of shares have not actually changed. For example, say you have ten shares and your cost per share is $10 for a total of $100. The issuing company announces a 2-for-1 stock split. You are issued ten additional shares, however you notice your cost per share is now at $5/share. However, those 20 shares at $5/share still arrive at a total of $100 so your total dollar amount has not actually changed. Meanwhile, reverse stock splits are the simply the occurrence of an opposite event whereby the number of shares decrease and the price per share increases.
What is a market order?
A market order is a type of buy or sell order placed with your brokerage firm. It tells the broker to buy or sell a particular stock at the best available price once the order request has been received. While market orders can usually be filled quite quickly, if market conditions are particularly volatile you may pay more for your shares or end up selling your shares for less than you originally expected.
What is a limit order?
A limit order is a type of buy or sell order placed with your brokerage firm. It tells the broker to buy or sell a particular stock only at, or below/above, a price that you specify. While this ensures that you pay exactly what you expect per share, the trade may take some time to get filled and you could run the risk of it never getting filled if the price fails to fall or reach the level that you had specified.
What is order timing?
When you are placing an order for a stock, you will need to specify how long the brokerage firm should attempt to fill your order. The two main timing options are day only and good-till-canceled (GTC). A day only order is a type of order that stays in force until the market day ends (normally at 4:00pm ET). If, by the end of the market day, the order has yet to be fulfilled it will be canceled. Meanwhile a good-till-canceled order will stay in force beyond the market day for an extended period of time. This period of time varies according to broker so it is always good to research what their extended period of time is defined as. During this period, your broker will keep trying to have your order fulfilled throughout each market day unless you cancel the order.
How do I purchase or sell stocks?
Each of our advisors at Florida Financial are knowledgeable on the different types of stocks available and can help guide you to make sure each purchase or sale is the correct action to take for your portfolio. Contact us today for a free consultation.
Note: All investments involve potential risks, including loss of principal. Please consult with your professionals regarding your specific situation prior to making any investment decisions.
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Helpful Resources:
- Investing Basics:
Embark on your Investing Journey ebook - Stocks 101:
What is a Stock
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