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So, what is a broker & What are stocks?
A broker is the person who handles transactions (mediates deals) for you when you are investing. The term can be used to describe the actual person that you are dealing with one on one or it can be used to describe a firm, such as India Bulls. (Some of you may remember the old commercial saying "my broker is Religare and he says"...)
Today you are probably more familiar with Religare, Prrsaar or India bulls, but if you watch any television or surf the internet, you certainly have seen ads for them, etc. Prior to the internet (in the stone-age) there were very few alternatives for the individual investor apart from dealing with a broker or getting your own license. You would be forced to deal with a broker whether the broker was a "full service" broker, meaning they would tell you what to invest in and would control your portfolio, or a "discount broker" who would charge less, but would only carry out your orders, not give recommendations or manage your account. Before you delve into the intricacies of the stock market, the first thing you should understand is what exactly a stock is. Stocks, which are also known as shares, are portions of companies that people can buy, and therefore own part of the company. But even though you may own a part of a company, only those who have invested a lot of money into the company have any real say in how the company is run.
There are two different types of shares: preferred (preference) shares and equity (common) shares. When you invest in equity shares, there is a greater risk of losing part or even all of the investment that you have put into the company should the company stop functioning. Why is this? Because creditors, bond holders and preferred shared holders in terms of being paid first, have a higher rank than the common shareholders, and because of this they will get the first chance to get some of the money they have put in if the company goes out of business.
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