Investing becomes popular nowadays. Many people, especially youngsters, are aware of the benefits they will get from the investment. There are various investments, such as real estate, gold, and the most popular stocks. However, many people prefer investing in stock rather than other assets as they do not need much money. They can start with a hundred dollars, and they have already invested in the market. Some beginners do not have sufficient information about this but want to start it. If you are included in this type, then take a look at the following article.
Stock investment definition, types, and how does it work
Understanding stocks is easy. Shares are evidence or a good sign of a person’s capital ownership in a line of business or company. Someone who owns shares in company A has the right to get profits and assets of the company. Because shares are a sign of a person’s or a business entity’s capital participation in a company, that person or party has a claim on the company’s income and company assets. If you have already known about the definition, then you also have to know about the types. There are two types of stocks. The first is ordinary shares. This type of stock will allow you to get a portion of the income (dividends), but you have to accept the risk of losing the company if you lose. Another advantage is that you have a stake in managing the company too. At the same time, preferred shares are a condition when they have more rights than common stock owners. One of them is when sharing profits, and you come first.
Then if you ask, how do stocks work? Before entering the stock exchange, companies usually have to make an initial public offering. Usually called an IPO (Initial Public Offering) with a process such as publication of a prospectus in mass media which contains a business description and essential information related to the company including share offering price. If you are interested in buying, you can fill out the order form and pay in advance according to the stock price in the prospectus. After the offering period is over, the company will allow shares to investors who have ordered. If the share allotment is less than the money deposited, the company has the right to refund. If the shares are already on the stock exchange, it means that you can sell or buy more shares from other shareholders.
Stock investment advantages
In general, there are two types of benefits that investors get by owning a stock, those are dividends and capital gain. Dividends are profit sharing that the company gives to stock investors. Dividends are usually given after the approval of the shareholders is decided in the meeting. If you want to get dividends, then you must hold shares for a long time. Dividends can be in the form of cash or several shares owned by an investor where the shares will increase according to the time of dividend distribution.
In comparison, the capital gain is the difference between the price when you buy it and the selling price. Capital gains are formed due to trading activities on the stock exchange. For example, you buy stock A for $ 1,000 per share, and then you sell it at $ 1,500 per share. That means you get a capital gain of $500 from every share you sell. Profitable, isn’t it?
However, investing in stock does not mean that you will always get profit from it. You can also get a loss on investment. It is because every investment is not always profitable. There are certain risks that you may bear, such as:
- Capital Loss
This one is the other side of capital gain. If you buy stock A at a price of $1,500 and at one time, the share price of company A has decreased to $1,000 per share. Then you can sell the stock at a loss with a decrease of $500. In essence, a capital loss is a condition where you sell the stock at a lower price than the purchase price.
- Liquidation Risk
A condition where the company that owns the shares is declared bankrupt by the court or the company is dissolved. In this condition, the investor’s claim rights get the last priority after all the company’s obligations have been paid off. If there is indeed a residual wealth of the company, then stock investors will still not get the results from the liquidation. This is the most challenging condition a stock investor has to face.
It should be noted that the stock price is also determined by the supply and demand for the stock. Many factors affect supply and demand, for example, interest rates, exchange rates, inflation, and possibly non-economic factors such as social and political conditions. That is why doing research first before purchasing stock is crucial. For instance, you want to have stock in the food sector, and then you decide to buy FMCI stock. Then you have to check what is FMCI stock and how their performance is. If you have read about FMCI, it is a Special Purpose Acquisitions Company or SPAC, then merged with Tattoed Chef, a plant-based food company.
Is FMCI a good investment?
If you are interested in buying food industry stock, then you may find FMCI stock. FMCI or Forum Merger II is actually a Special Purpose Acquisitions Company or SPAC. The company is merged with Tattoed Chef, a food plant-based company that produces acai, zucchini spirals, ready-to-cook bowls, riced cauliflower, and more frozen foods. In the long-term investment, FMCI stock has awesome performance. In 2021, if you invest a hundred dollars, it is forecasted that your money will develop until $580.08 in the next five years or 2026. What about you? Are you interested in investing your money in this stock? It is much better to do your research first by seeing the market performance, economic situation, and many more.