A stocks definition is the first step for any individual to become an investor. And this isn’t an exclusive club. Anyone and everyone, from all walks of life, can buy stocks.

So, what are stocks exactly? And how can you use the stock market to develop a passive income stream? Let’s take a closer look below.

The stocks definition for beginners

Stocks Definition to Live By

Stocks are securities that represent ownership in publicly-traded companies. When you own a stock, you instantly become a shareholder in said business. You’re called a shareholder because you now share in that company’s assets and profits.

For the company itself, going public presents a variety of benefits. Issuing stocks gives the company the opportunity to raise funds and invest in their business. As a result, the company can grow and flourish even further.

It’s a complete cycle, and that’s why it’s so important to have a concrete stocks definition. This is especially true for beginning investors. You need to have a full understanding of the process before investing your hard-earned money.

Investing in stocks is a way to grow your own money and outpace inflation. In fact, it’s one of the most proven forms of passive income.

The price of each stock will fluctuate throughout the day. This is due to supply and demand of the company’s shares. When the demand is up and supply doesn’t change, the stock price will rise. And higher demand usually follows the success of the underlying company.

However, the stock price can also plummet if the company loses value. In some cases, a company will go out of business completely. Therefore, investors will lose all of their investment.

It’s a risk and reward system that can bring in massive gains or tough losses. In general, the stock market historically averages a return between 7% and 10%.

And as you are searching for the right stocks definition, there’s a high likelihood that you already invest in stocks. Do you currently have a 401(k) or other retirement account? If so, most retirement plans invest in mutual funds, which invest your money in a wide range of stocks.

Stock Market Exchanges and Stockbrokers

Public companies can sell stocks through a stock market exchange. For example, the largest exchanges in the U.S. are the New York Stock Exchange (NYSE) and the Nasdaq. Exchanges are open Monday through Friday, excluding certain holidays. And you can buy and sell shares of these companies directly through a stockbroker.

And you can’t talk about the stocks definition without discussing stockbrokers. These are professional traders that buy and sell stocks on behalf of their clients. In modern investing, most individuals use an online brokerage for their investments. The most popular online brokerages include:

  • Fidelity
  • Charles Schwab
  • J.P. Morgan
  • TD Ameritrade
  • Merrill Edge

There’s also a growing interest in stock trading mobile applications, such as Robinhood. These commission-fee brokers offer beginners a path into the stock market with no minimum account balances. Furthermore, they usually offer educational sections on their application to help you better understand the market.

Develop Steady Passive Income with Smart Investments

You can develop passive income through smart investing. With a balanced portfolio, you can also create a shortcut to financial freedom in your life.

The stock market presents a variety of investment opportunities that many people are missing out on. With this stocks definition, you can begin to reap the benefits and rewards of investing.