How Stocks Work as Investment and Trading Instruments

Stocks are one of the most popular investment instruments today. This one investment promises a sizable profit potential for its investors. However, there are still many who don't know how stocks work and where these profits can come from.

This information is actually very important for investors before they jump into stock investment. That way, you know what kind of stock to buy, how much, and finally what to use it for. For that, see the explanation of how stocks work below!

Definition of Shares

Shares are securities that show partial ownership of the assets of a company. In other words, shareholders are also considered as owners of the company. This of course relates to financial reports, yes.

Companies that list on stock exchanges certainly want to get additional capital. The funds obtained from the sale of these shares will be used for operations and business development. Companies will certainly look for even better profits with outside funds.

Shareholders will certainly get returns from the company's profits. The returns from the company's profits are dividends that are distributed at certain times. To get it, investors must own shares within a certain period of time before the time of dividend distribution.

To own shares, you can buy them on the Indonesia Stock Exchange (IDX). The purchase of these shares will be through a securities company or broker. Before that, you must have a Customer Fund Account (RDN) to transact on the stock exchange.

Apart from investing, stocks can also be used as trading instruments. That is, you can buy and sell shares to make a profit. The simple way is to buy stock when the price is down and then sell it when the stock price is high. That way, you will benefit from the difference in share prices.

How Stocks for Investment Work

Stocks are one of the most promising investment instruments. Of course there are many benefits that investors can get. If the company's performance is good, the profits obtained by investors will also multiply.

To get it, you have to invest in the long term. That is, you have to continue to hold the ownership of these shares for a long time. Even better if the amount of share ownership held can be added over time.

On the other hand, you also need fundamental analysis in reading the stock market. Also know the financial statements of the company before finally buying and even increasing the number of shareholdings. Choosing a company with good financial reports certainly has the potential to open up big profit opportunities.

Companies with poor performance will be followed by a decline in stock prices. This will encourage more investors to sell their shares. The more people who sell, the lower the price.

How Stocks Work for Trading

On the other hand, stocks are also commonly used as trading assets. Stock trading is an activity of buying and selling stock instruments to obtain capital gains. This activity is considered to have greater profit potential. In fact, profits can be obtained daily or faster than stock investors.

Traders will look for stock issuers that have the potential to increase in price in a short time. They will hunt for potential IPO stocks and fried stocks to get big profits. In this case, traders will not hold the stock for a long time. As long as the price rises, traders will immediately sell it.

Because of that, traders are not eyeing dividends distributed by the company. The profits obtained purely from the sale and purchase of shares owned.

On the one hand, stock trading also has a fairly high risk. It could be that you buy shares at the right price, but the share price doesn't go up. This is what makes you unable to sell it in a short time.