What are stocks and what are the advantages and disadvantages? You will get both of these questions from this article. This explanation is perfect for those of you who want to start exploring stocks. Happy reading.
What Are Shares?
Stocks are one of the most popular investment instruments on the financial market. The reason why stocks are so attractive to investors is that they can provide an attractive rate of return. However, stocks also come with risks which are described in this article. A company can issue shares in the framework of funding the company.
When a person or business entity owns Shares, the person or business entity has provided capital participation in a company or limited liability company (PT). By including this capital, the party has a claim on company income, a claim on company assets, and is entitled to attend the General Meeting of Shareholders (GMS). Here is an article that explains stocks and what are the pros and cons.
What are the advantages of shares?
Basically, there are two types of profits an investor can get by buying or owning shares in a company or limited liability company (PT), namely: dividends and capital gains. Here’s the explanation.
A dividend is a profit-sharing given by a company or limited liability company (PT) and comes from the profits that the company has generated within a certain period of time. The distribution of profits (dividends) is given after obtaining approval from the shareholders at the General Meeting of Shareholders (GMS). If an investor wants to get dividends, then the investor must hold the shares for a relatively long period of time, that is, until the share ownership is in the period where it is recognized as a shareholder entitled to dividends.
Dividends distributed by the company can be in the form of cash dividends – meaning that each shareholder is given cash dividends in a certain amount of rupiah for each share – or it can also be in the form of share dividends, which means that each shareholder is given dividends for a number of shares so that the number of shares owned by an investor will increase with the distribution of the share dividend.
Capital Gain is the difference between the buying price and the selling price where the selling price is higher than the buying price. Profits from capital gains are formed by the activity of stock trading on the secondary market. For example, an investor buys shares of company X at a price per share of $ 5.00 then sells them at a price of $ 5.30 per share, which means that the investor gets a capital gain of I$ 0.30 for every share he sells. The total profit obtained from capital gain is the difference between the purchase price and the selling price which will be multiplied by the number of shares owned by a person.
What are the disadvantages of shares?
Apart from being able to gain profits, shares also have risks that investors must be aware of. The risks held by shares are Capital Loss and Liquidity Risk. Here is the explanation.
1. Capital Loss
Capital Loss is a condition in which investors sell shares at a lower price than their purchase price (the opposite of Capital Gain). For example, Jean bought Company X shares at a price of $ 5,10 per share, then the share price continued to decline until it reached $ 4,40 per share. Then Jean decided to sell all of his shares at a price of $ 4,40. In this case, Jean suffered a loss of $ 0.7 per share. The total loss is the accumulation of the Capital Loss by the number of shares it owns.
See Also : Forex Trading Untuk Pemodal Pemula
2. Liquidation Risk
In the case of a company that goes bankrupt or is dissolved, the shareholder (investor) is the last priority in the distribution of the company’s assets. A company that is declared bankrupt by the court has the top priority to pay off all of the Company’s liabilities including its debts. If the assets owned still have residue, then the remainder will be distributed personally to the shareholders. If the proceeds from the sale of all assets do not have the remaining to pay off all of the company’s liabilities, the shareholders will not get anything. This is called liquidity risk. A shareholder should always be careful and follow the development of the company in order to reduce this liquidity risk.
See Also : Perbedaan Forex Trading dan Saham
Shares Price Fluctuation
In daily trading activities, stock prices will fluctuate either in the form of increases or decreases. This can occur because of the demand and supply (supply and demand) of these shares. Some of the things that affect the supply and demand of stocks are Company performance interest rate, Inflation, Exchange rates, and Non-economic factors such as social and political conditions.
This is the information related to what shares are and what is the gain or loss. Everything has its advantages and disadvantages. Enjoy playing stocks.