Forex Investment and Currency Trading

Many companies are owned by people like you. To go public, a company divide its ownership into equal shares and sells them to the public. If you own its stock, you share in the success if it does well, and in the failure if it doesn’t. in short, most people buy stock to let their fortunes ride with the fortunes of the company.

1. A company goes public. The owners of a small private company need to raise money to stay competitive. They could continue to borrow, but the best way to raise enough money to meet their goals is to ask many people to invest in the company’s future. The company hires an investment banker to take them public. The banker looks at the company’s assets, debts, and profit potential, then calculates how many shares to offer and at what opening price. It’s a balancing act. There shouldn’t be too many shares, which could flood the market, or too few, which would make shares in short supply. The price should also not be so high to discourage investors or too low to fall short of the shares’ fair value.
2. Investors buy in. On opening day, the shares enter the market as an initial public offering (IPO). The investment banker pays the company for all the shares and then resells the shares to the public. The once-private owners are now sharing ownership with the public.
3. The company benefits. The company doesn’t directly receive more money from the stock trading. Still, it benefits from a rising price because ownership in the company becomes more valuable and says the company is succeeding. Most of all, rising prices let the management borrow more money, using the value of its stock as collateral.
4. Investors follow the progress. Research professionals analyze the company and distribute reports to the public. Every day, people who want to become owners negotiate prices with people who want to sell their shares and get out. Over the long term, the stock price will reflect how well a company is performing in its business. Over shorter terms, though, stock price is affected mainly by one thing: supply and demand. If a few people want to sell, but a lot of people want to own the stock, the sellers will drive up their asking price to see just how much the buyers are willing to pay. The price will rise as long as there are people willing to pay higher prices to become an owner. The reverse is also true: if shares become hard to sell, the price will fall until it reaches a level where people are willing to buy.
5. The company progress. The company’s management may reinvest its earnings until it believes it can share some profits with shareholders and still remain fully competitive. Eventually, they may begin paying a dividend (distributing profits) for every share owned. By this time, you may have sold your stock and may no longer be a shareholder, but others are shareholders, and trading will continue to go around and around as long as the company remains in business.

Think like an owner

Stockholders can earn profits in two ways:

• Through distributions of a company’s profits, called dividends.
• From an increase in the price of a share of the company’s stock.