What Happens After You Buy A Stock? Beginners Guide

What happens after you invest in a stock? Well, when you buy a stock, you become the stock owner – owning a fraction of the firm’s assets and profits based on the stock’s amount.

If a company makes a profit, you will get the profit according to your investment. The owner of the stock is known as a shareholder of that company.

The stocks are traded on security exchanges and over-the-counter (OTC) markets. A company issues shares (units of stock) to finance its projects and operations.

What happens after you buy a stock?

Table of Contents

What are Stocks?

A stock (equity) is a security that represents the ownership of a fraction of a company. The stocks are elaborated as units of shares that a company possesses. There are two types of stocks; common stocks and preferred stocks.

A corporation issues stock on the market, the stock exchange where the initial public offering (IPO) is made. An IPO refers to the process of offering shares of a private corporation to the public in a new stock issuance. 

Following the IPO, the stocks are traded on both the exchanges and OTC’s. The sole purpose of selling stock is to raise capital for a corporation and fund different projects, operations, and other corporate purposes. 

How Do Stock Markets Work?

We now go on to answer the critical question that every beginner in finance and investments is typically faced with: How do stock markets work?

Put simply, the stock market is a place where investors can buy and sell shares of publicly traded companies.

Stock markets serve as platforms for companies to raise capital by issuing shares of their stock to investors in exchange for money, and for investors to buy and sell those shares amongst themselves.

For anyone wondering what happens after you invest in a stock, you simply become a shareholder in the company, exposed to the appreciation and depreciation of the company’s stock in the open market.

The stock market functions based on the principles of supply and demand. When there is high demand for a particular stock, the price of the stock will go up, and when there is low demand, the price will go down. Demand, and thus stock price, is impacted by a wide range of factors.

How to Calculate a Company’s Total Worth

The total number of stocks (shares) and the per-share value, when multiplied, give the market capitalization or the company’s total worth. Purchasing stocks is one of the most influential investment practices performed worldwide. 

How to calculate a company’s total worth

There are two main essential points that investors get quickly: the price of shares rises (bull run) they gain profit and when the price drops (bear run) they lose money. But what drives a stock price is the supply and demand of shares and the fluctuations in stock prices. 

So, let’s dig into the basics. When a company issues shares, they sell them to investors (private for pre-IPO and public for post-IPO).

The money from which you buy the shares goes to the company, and in return, you receive a piece of paper, which is called a share. So, the company offers shares using mediators, including investment banks, brokers, and Wall Street. 

For instance, a company offers common stock shares worth $3 million, and each share is priced at $10 per share, which means there are 300,000 shares offered. All the shares are sold in different proportions to various investors. The company would attain around $3 million.

Now, the company may use the funded capital for corporate use, invest in other companies (buying other companies’ shares), or any other legal reason to achieve its objectives. 

What happens when you buy 1% of stock?

What Happens When You Buy 1% of Stock?

After buying the shares of the company, you become the owner and a stakeholder in every regard. 1% shareholdings represent a small stake; however, the amount can vary based on the price of shares and how many total shares a firm has.

The percentage you hold in a company does not measure the standard of ownership. If you own even one share among thousands of shares, you will become the owner and will have rights in the firm. However, there is a difference in the role, as we see majority shareholders influence the company and the selection of the Board of Directors. 

Now, what does precisely 1% shareholdings mean? As highlighted in the example above, a company offers 4,000,000 common stock shares in the market at a per-share price of $1, which makes an aggregate amount of $4 million. If you purchase 1% of the stock, that will total 40,000 shares worth $40,000.

You purchased the stock at its intrinsic value, and the price will change in the future based on supply and demand and other factors. If the price increases from $4, you will get a profit, and if it drops below $4, you will get a loss.

What happens when you buy a stock after hours?

What Happens When You Buy a Stock After Hours?

We can trade stocks all day (24/7). As the world has evolved, digitalization has made things easier for investors to buy and sell their stocks. Through online exchange apps and brokerage apps, you can buy and sell shares. These exchanges are secondary apart from the New York Stock Exchange and NASDAQ which are open from 9:30 a.m. to 4 p.m. EST.

Any stock trading that occurs outside the trading hours is usually known as after-hours trading. So, what happens when you buy a stock during after-hours? Usually, small investors trade in after-hour sessions, as large institutional investors such as pension funds and insurance companies complete most of their trades during regular hours.

After-hours markets are most likely to have lower liquidity, lower volume, and more volatility than the stock market. Usually, the stock you buy after hours is similar to what you buy in the regular trading session. However, the price may vary because, in the regular trading session, the price may be higher because of higher volume—it still depends on the situation. 

For instance, the price of a share was $10 in the regular trading session, and it dropped to $9.50 per share in the after-hours, and you buy one share in the after-hours at $9.50. In the following day’s session, the stock price rises to $10.50, and you sell that share in the regular session that day. You will have a profit of $1.00 per share. 

What Happens After You Invest in a Stock?

Most individuals looking to get in on the stock market arena are heavily focused on buying the right stocks. Very few ponder the question of what happens after you invest in a stock.

After you invest in a stock, you become a shareholder in that company. This means that you have a partial ownership stake in the company and are entitled to a share of its profits. As the value of the company grows, the value of your shares may increase accordingly.

The following are some of the subsequent outcomes shareholders may face after they invest in a stock:

• Capital Appreciation

  If the value of the stock increases, the investor can sell their shares at a higher price than they purchased them, earning a profit.

• Dividend Payments

  Some companies pay a portion of their profits as dividends to their shareholders. Investors who own shares in these companies may receive regular payments.

• Capital Loss

  If the value of the stock decreases, the investor may sell their shares at a lower price than they purchased them, resulting in a loss.

• Long-Term Holding

  If the investor believes that the company has long-term growth potential, they may choose to hold onto their shares in the hope that the stock price will increase in the future.

• Additional Investment

  Some investors may choose to invest more money in the stock market to diversify their portfolios or take advantage of new investment opportunities.

Why a Company Issues Shares

Often, you hear the news of a company going public or issuing shares to the public as an IPO. Many of you may have the question that why does a company issue shares. The sole purpose of issuing shares is to raise capital and fund the firm’s operations and investments. But why issue the shares? That’s the key question. Well, shares are themselves security, a shareholder agreement, in which the owner has proof of the firm’s ownership. When you want to sell the shares, you will sell the contract in the market and get the money at the price that the share is being traded.

Just like with a standard contract between two parties to show proof and fulfill the required agreement, a share provides financial security to a shareholder. Companies then use the money from which they buy shares for the development and growth of their businesses.

There are two primary methods of financing; debt financing and equity financing. Debt financing is when a company takes loans from banks or can borrow by issuing bonds to raise this capital. Equity financing is the one where the company issues shares. In debt financing, the company has the liability to return the loan with interest at a specific time. Whereas equity financing provides more freedom to use this capital as it does not carry interest in it. And this money does not need to be paid back.

How do Stocks Work For Beginners

The winning prospects of the stock market attract all sorts of individuals to partake in investments, particularly beginners. In light of this, we have broken down exactly how do stocks work for beginners.

When a company wants to raise money, it can issue shares of its stock to investors. These shares represent ownership in the company, and each share represents a fraction of the company’s overall value.

For example, if a company has issued one million shares of stock and you purchase 100 shares, you own 0.01% of the company. Similarly, if a large investor acquires 100,000 shares of the company, they effectively hold a 10% stake in the company.

If you are wondering what happens after you invest in a stock, you are not alone. Most investors in the market rightfully plan ahead, and take precautions.

As an investor, you can make money from stocks in two ways: capital gains and dividends.

Capital gains are earned when the value of the stock increases, and you sell your shares for a higher price than you paid for them. Dividends are regular payments made to shareholders by some companies, usually from their profits.

To start investing in stocks, beginners can open a brokerage account with a reputable brokerage firm. They can then research companies and buy and sell shares of stock through their broker.

If you are a beginner, you must research the companies you are investing in, and thoroughly understand what happens after you invest in a stock.

Frequently Asked Questions

Here are some frequently asked questions related to what happens after you buy a stock that comes from every new stock market investor. When someone wants to invest in a stock, they need to be assured that they get some profit in return.

How Do You Get Paid From Stocks? 

There are two major approaches to gain from the stock.

First, when a stock you own increases in value- that happens when somebody wants to buy your stock at a price more than what you paid for it. In that case, the buyer ought to invest in that stock. There can be several reasons behind it, such as its fundamentals are improving or its future outlook looks solid.

A stock that increases in value can cause unrealized gains if you hold on to it. The only way to lock in your gains is to sell the stock. Whenever the stock market is open, stock prices are constantly fluctuating, so you do not know how much you’re going to make until you actually sell the stock.

A second way to get profits out of a stock is to receive dividends–a dividend is a payout that the company might make to shareholders. The dividend yield usually varies from company to company.

Does Buying a Stock Make it Go Up?

Stock prices change every day, every minute, and every second. Market forces are the reason that plays their part in changing share prices. By market forces, we mean the change in supply (selling) and demand (buying) of a stock. 

So, it’s simple to buy stock in the market, which means the demand will be higher. This positive increase in volume would drive the share price. Whereas, if more people wanted to sell a stock than buy it, there would be more excellent supply than demand, and the price would fall.

Billions of stock shares are traded (bought and sold) daily, and it’s this buying and selling that keeps the stock price moving. So, the phenomenon of demand and supply sets the share price each day.

The rising demand for a stock is driven by how confident investors are about that stock’s prospects. Multiple factors help in rising stock demand, including quarterly reports beating estimates, promising outlooks, analyst upgrades, and other positive business developments. 

For instance, company ABC and 1000 buyers are willing to buy the shares at $10 per share. At the same time, 500 people are willing to sell the shares for $10 per share.

Now, 500 will get the shares at $10, while the other buyers will up their price to $11 to buy the shares. In that pursuit, the other 500 shareholders would now be willing to sell their shares at $11. Thus, this helps increase the share price to $11 compared to the previous price of $10. 

What Happens to My Money When the Value of a Stock Drops?

What happens to my money when the value of a stock drops? As we have just discussed, stock prices change every day based on supply and demand.

If the demand is lower and the supply of shares is higher, the stock price would drop. This means that more shareholders are willing to sell their shares, and there are few buyers in the market to purchase the shares. 

Now, the factors that may lead to higher supply than lower demand may be due to:

1.  Analyst’s Downgrade
2. Lower-than-Expected Estimates
3. Poor outlook 
4. Higher Debt-to-Asset Ratio
5. Operational and Financial Downfalls 

So, what happens to your money when the value of your stock drops? It has remained a mystery as the depreciation of stock’s value kind of swallows investors’ money.

The company receives the money you pay to buy a stock and used it for corporate use. The stock price is based on supply and demand. Technically, we can say:

Market Capitalization = share price x number of shares outstanding

Share price= Market Capitalization/ number of shares outstanding

So, the drop in share price leads to a drop in the market capitalization of the company. And, you as a shareholder go into the loss. 

How Long Does it Take to Make Money From Stocks

There is no guaranteed timeline for making money from stocks, as it depends on various factors like market conditions, the company’s performance, and the investor’s investment strategy.

What happens when you buy a stock?

Conclusion

Investing in the stock market is a game of patience, and whosoever understands this mostly wins. The best way to buy a stock is to look at all the company’s fundamentals, for example, its past stock price trends, achievements, and future prospects. 

What happens after you buy a stock? Well, you become the partial owner of that company. Usually, the more significant amount of stock you hold, the more influence you have in that company and the more big share you will have in the company’s profit.

Your income depends on the stock market. Usually, the stock market is affected by several factors. Mainly, it depends on the country’s economic, political, and security situations. If the stock price drops, you must understand the market trend and the basics to deal with the situation.

Buying a stock is a straightforward task, but to hold on to it is pretty tricky. When a company goes public, it will make the initial public offering (IPO). Following that, you can trade the stock in over-the-counter markets and other exchanges—online exchanges nowadays. 

So, we have companies from different sectors that come up with different aspects. Some companies will offer dividends, and some companies will be on a long-term hold.