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Basic stock trading education – capital gains and dividends

TradingPub Admin | December 6, 2012

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Interested in trading stocks? Here is some basic information you can use.

Stock Basics

A share of stock represents a unit of ownership rights in a company. Its price is determined by the supply of and demand for ownership rights in that particular organization.

There are various methods financial analysts use to evaluate stock values, and these can be found at Morningstar. However, how much these financial instruments are actually worth is largely based in speculation. The fact that their value has so much uncertainty means that stocks are generally considered to be "risky" assets.

However, investing frequently observes a risk-reward tradeoff, and investors who purchase stocks could potentially be rewarded for incurring this risk by enjoying higher returns than they would by investing in less-risky assets. 

Financial Rewards 

If you purchase stocks you can potentially be rewarded in two ways - capital gains and dividend payments. If you buy a stock, your initial investment can generate a capital gain, which means it is now trading at a higher price than the purchase price.

In addition, investors who purchase stocks can be rewarded through dividend payments. These payments are paid to shareholders out of corporate earnings, since these stockholders are part owners of the company.

If you purchase a stock that pays you a dividend, this payment can be made in the form of cash, stock or property. The majority of companies that make dividend payments are financially stable and have been around for a while. Their stock prices might not have severe fluctuations, but the firms want to reward shareholders through these periodic payments, which are usually made on a quarterly basis.

If you want access to stock trading education, you can find it at TradingPub, home to some of the top investors and traders in the industry.