Buying stocks, bonds, or currencies is a lot like buying a car.
It's pretty easy to decide to buy something.
What to buy, on the other hand, is a whole different problem. Before you can drive your new car home, you have to decide on a brand, a model, a colour scheme, and upholstery.
You can choose between six and eight cylinders, a manual or automatic transmission, white walls, a radio, a heater, and a dozen other options.
same thing with securities. Even though there are only two main types of investments to choose from—bonds and stocks—there are a lot of small differences and extras that can be added.
For many investors, one factor may be enough to decide which option to go with. For a man with limited money, corporate bonds that cost $1,000 each and pay 3% interest are probably too expensive and too little for what he wants to do.
A richer investor might be interested in the potential of common stock, but he might find that tax-free municipal bonds would give him a better return. All investors, though, would do well to learn about the different types of securities that make up corporate capital structures. This will help them understand how they affect each other and how they affect the choice they make for themselves.
The corporation is an organisation that fits the needs of everyone involved very well. It came about because the business community needed more money than it could get from its own resources to build, grow, and expand.
Individual entrepreneurs, like a store owner who sells goods, an artist who provides services, or a small manufacturer, are the most basic type of business. Their capital needs are met by savings or a small bank loan.
Partnerships are a little more complicated because they involve putting together the resources of more than one person to work on a project together. Most likely, the group's credit is a little bit better than an individual's. The partners are also legally responsible for all of the company's debts and take on the responsibility of running the business.
Either type of organisation works well as long as businesses stay small. When opportunities for growth come up, however, the person and his or her partners are put under a lot of pressure. This is because new plant and equipment are needed, more raw materials must be stored, branch offices and distributors must be paid for, and more people must be hired. Most of the time, their surplus is too small and their regular lines of credit are too small to do the job.
The answer is not to make the partnership bigger. It's hard to find outside investors who are willing to share the responsibilities of a partnership or put their money at risk in a partnership agreement. In any case, the range of financial needs at this stage is usually so wide that they could only be met by making the partnership so big that it's silly.
How to fix it? A company with public stock. So, ownership is shared among as many hundreds or thousands of people as are willing to buy in. Each person's share of the business is shown by how much stock or shares they own. Their pay is also a share of how much money their company makes.
The board of directors they choose is how they use their power. And because their stock is a standard, known amount and there are stock exchanges, they can easily leave the company and sell their share of ownership to someone else.
Once it is set up and running, the corporation is an impersonal thing whose life span is unknown. Directors and officers can come and go, and investors can buy and sell shares, but the corporation has a life force and momentum that could allow it to keep going forever.
Picking one currency against another on the Forex is also similar, but now you can use Forex software to help you, which you can sometimes get for free.
