How to Buy Stocks the Right Way

Stock is the outstanding shares in which ownership of a company is divided. In common American English, all the stocks are called "stock." Each share of stock constitutes fractional ownership in proportion to its quantity. That is, each owner of the stock has a right to an equal number of his shares. The right to his shares is called "right of first refusal." If any shareholder wants to sell his shares, the company has to give him a notice on or before the expiration of his right of first refusal.

All shares in a company that is not owned by the company can be traded in the stock market. There are two types of stocks: common stocks and preferred stocks. Common stocks are traded on the open market like stocks in any other company; the difference lies in the name. Common stocks are listed on the New York Stock Exchange (NYSE) and the NASDAQ. Preferred stocks are traded on the Pink Sheets and the NASDAQ.

Usually, common stocks are traded for the amount they are worth and are listed on the NYSE and NASDAQ; preferred stocks on the Pink Sheets and the NASDAQ. When a company is delisted from the NYSE and NASDAQ, it loses its ability to trade publicly. It is delisted when it trades fewer than five percent of its shares on the OTCBB. When a company trades more than five percent of its shares on the OTCBB, it becomes a Nasdaq member and is allowed to trade publicly.

Over the years the number of publicly-traded stocks has grown dramatically. One reason for this is that securities laws have become more restrictive in recent years. Before deregulation, there was little regulation of the stock market and companies could put whatever business they wanted into the market as long as their stock stayed under the $5 mark. As a result, some of these companies became too big to fail and were forced to file for bankruptcy.

However, with today's more sophisticated technology investors can take advantage of online information that allows them to follow companies like Facebook and Google as well as blue chip stocks. This information allows the investor to become an active participant in the stock market. Investors can monitor company news and activities to decide whether a particular stock is worth watching. They can also make purchases and sell shares as frequently as desired.

Long-term investors should generally buy and hold stocks for the long term. Buying stocks on the short-term basis may be tempting, but it is not a good idea. This is because it does not give the investor time to build a track record of buying and selling shares at a profit and makes money only if they make money. By putting their money into a mutual fund that invests in the top stocks as well as bonds and money markets, long-term investors can get a good return on their investment while avoiding the risk of putting their money at risk with short-term buying.