Stocks: Definition, Benefits and Risks, and How to Buy Stocks

What are stocks and how do they work? There are still many people who are beginners and do not understand stocks. One of the instruments in investing is stocks.

Stocks are currently in great demand and cultivated among Indonesian people, especially young people. Among the various forms of investment, stocks attract the attention of many investors because they offer many advantages. 

Many people make investments, but that does not mean this activity is free from risk. Therefore, it is necessary to understand in advance how to invest in stocks. But you don't need to worry because we will thoroughly discuss information about stocks and what you need to know to get to know stocks more deeply.

The following article below will review the meaning of stocks, their characteristics, types, and how to invest in stocks.

Definition of Shares

Stocks are one of the most popular forms of financial market instruments today. Shares, also called securities or stock which are securities that show proof of ownership in a company or entity.

Shares can also be interpreted as a sign of the capital participation of a person or legal entity as a certain shareholder in a corporation or limited liability company. By entering capital, the parties are entitled to income, company assets, and the right to participate in the General Meeting of Shareholders (GMS).

Tracing a deeper understanding of stocks that based on the Capital Market Law No. 8/1995 article 1 paragraph 5, shares mean debt, securities, stocks, bonds, collective investment contract units, proof of debt, futures contracts on securities, and securities which are all forms of authorization of securities derivatives.

Types of Shares

After knowing the meaning of stocks, you need to know about the types of stocks. Here are the types of stocks that you should know before starting to invest in stocks.

1. Common Stock

Ordinary shares are a type of shares owned by actual shareholders. The implication is that ordinary shareholders take risks and earn stable returns. If the company's condition worsens, the common stockholders will no longer receive dividends. However, if the company is doing well, common shareholders will receive very large dividends and even additional share income.

Ordinary shares may also give the holder the right to vote at general meetings of stock directors and participate in company bylaw elections. If the company eventually closes, common shareholders will be able to vote for the company's remaining shares minus the incumbent's portion of the referral.

2. Preferred Stock

Preferred stock is a type of stock that gives the holder the privilege of receiving more dividends than common stock.

Advantages of Owning Shares

Get dividends

Dividends are a portion of the company's profits distributed to shareholders. The dividend rate to be paid is proposed by the Board of Directors and approved by the General Meeting of Shareholders (GMS).

Capital gain

Capital gains is the profit when investors sell shares at a higher price than the purchase price. Stocks are liquid assets, so they are easy to trade (through the stock market)

The Risks of Investing in Stocks

Not Getting Dividends

Generally, companies pay dividends when they do a good job. However, if the company's performance deteriorates or becomes low, the company will not be able to pay dividends.

Capital Loss

Capital loss is the opposite of capital gains. This occurs when you sell your shares for less than the purchase price.

Liquidation Risk

In the event of bankruptcy or liquidation of the issuer, shareholders have the final right to the company's assets after all of the issuer's debt has been paid off. The worst possibility is that the shareholders get nothing if there are no assets left.

How to Buy Shares

To buy shares in Indonesia, you must first register as an investor at a brokerage company and pay a certain amount of security deposit. The brokerage company in this case is the Indonesia Stock Exchange (IDX). Another way to buy stock is through a stockbroker.

There is a minimum number of shares purchased on the Indonesia Stock Exchange, which is 1 lot or 100 shares. So, for example the price of 1 share is IDR 3.710, investors need capital of 100 x IDR 3.710 = IDR. 371.000,-.

So, that's an explanation of what you need to know to get to know stocks. Hopefully the above article can help you further to be more interested in investing in stocks later.