Each individual share is a small stake in a company. In general terms if the company does well, the share rises in value. Conversely, if the company performs badly, a share falls in value. This reflects the underlying value of the company as measured by such things as profits, returns on investment and earnings per share.
Shareholders generally expect a return on their investment in two ways; capital gain and dividends.
Ordinary shares are the most common stock market investment to deal in. These are the shares that are normally referred to when discussing the company's share price and they also entitle the holder to vote at company meetings. Profits may be distributed by way of dividends.
You may consider other investment types for your portfolio such as:
The potential returns from stock market investment are impressive but they are not without risk. Investing in a Blue Chip company would usually be classed as lower risk than investing in a small fast growing company. It is worth noting however that all share prices can go down and you may get back less than you invested. A high potential return usually requires a higher risk.
It is important that you form an attitude to risk. Some investors will revel in high risk, speculative stocks while others will prefer a more secure selection of securities. Risk can be broken down into two categories.
Market risk relates to factors that affect the market as a whole - for example a general rise in interest rates would typically hurt companies across all sectors. Unique risk , on the other hand, relates to a specific stock, which is for example largely dependent on development of one new product.
To buy or sell shares in the UK you need to enlist the services of a firm regulated by the Financial Services Authority and which has permission to advise or trade in equities.
In general terms, there are three different services that a Stockbroker can offer: