Investing in stocks is a way for you to gain ownership of a percentage of a company's earnings and assets. Stocks are bought and sold on exchanges, such as the NASDAQ, the New York Stock Exchange, and the American stock exchange. When you invest in stock, you are essentially purchasing the rights to a portion of a company---or portions of multiple companies---with the hopes that this portion will increase in value over time (this will usually when a company performs well and increases its profitability, or when a rival company performs poorly).

Using a Brokerage Account

The most common way to invest in stock is to use a brokerage account. Essentially, using a brokerage account requires you to pay a company or individual to broker a deal with another company so that you can purchase a particular share of that other company's stock. According to Fool.com (see Reference 1), there are two general types of brokers you can go through: full-service and discount brokers. Full-service brokers are more expensive, and in addition to setting up deals, they also provide you with advice on what stocks to invest in. Discount brokers do not coach you on your investing, and are less expensive because there are no commission fees. No matter which type of broker you go through, you will have an option to set up either a margin account or a cash account. According to Fool.com, those just beginning in stock investing should avoid using margin accounts, as these allow you to invest money borrowed from brokers, which you must potentially pay back at interest.

Using Drips

According to Fool.com, "drips" is a blanket term for two types of stock investment plans: direct investment plans (DIPs) and dividend reinvestment plans (DRPs). These plans allow you to purchase shares of a company's stock directly, without going through a broker. They also allow you to pay for stock shares incrementally, which is ideal for investors who can only afford to invest a little at a time. However, according to the above source, not all companies offer drips, and there is less earning potential in comparison to using a brokerage account.

Active versus Passive Investing

Active investing is a strategy wherein you (or your stockbroker) choose and invest in a desired share of a company. According to Fool.com, the general term "stock investing" is commonly interpreted as meaning active investing. It requires the use of judgment, as well as constant calculation and evaluation, and has the potential to earn you money in the short term. In contrast, with passive investing, you make an initial investment and let it fluctuate based on a third party's financial index. The goal is to have good initial foresight and earn money over the long term.

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How Do I Invest?

How the Stock Market Works

Brokers and Online Trading: Full Service or Discount