Stock Market 101: What is a stock?

Overview:

1. What is a Stock?

2. What does it mean to own a stock?

3. Where can I buy stocks and trade them?

4. Does the Shareholder actually own a part of the corporation?

5. There are two main types of stocks: common and preferred.

What is a Stock?

A stock( also known as an equity) is a security that represents the ownership of a part or a fractional amount of a corporation. This means that the owner of the stock is entitled to a proportion of the corporation's assets or profits. This is determined by the amount of stock owned by a person. The units of stock that everyone invests in are called "Shares". Corporations issue stock to raise funds to operate their businesses at times of need or whenever deemed necessary.

What does it mean to own a stock?

Owning a stock means that the shareholder now owns a piece of the corporation. Depending on the type of stock, it may mean that the person also has a claim to the assets and profits of the company. Now in simpler terms, it means that the shareholder is essentially an owner of the issuing company. Ownership is determined by the number of shares held relative to the total amount available in the market. For example, if a shareholder owns 100 shares out of 1000 in total, the person owns 10% of the company's profits and assets.

Where can I buy stocks and trade them?

Public companies sell their stock through a stock market exchange, like the Nasdaq or the New York Stock Exchange. Investors can then buy and sell these shares among themselves through stockbrokers. The stock exchanges track the supply and demand of each company’s stock, which directly affects the stock’s price.

Does the Shareholder actually own a part of the corporation?

This is important to keep in mind, stockholders do not directly own the corporation, but own a part of the shares issued by a corporation. So no, the shareholder does not own the corporation itself, they just own a percentage of the shares issued by the corporation.

There are two main types of stocks: common and preferred.

Most investors own common stock in a public company. Common stock may pay dividends, but dividends are not guaranteed and the amount of the dividend is not fixed. Dividends are a way that companies reward shareholders for owning the stock, usually in the form of a cash payment. Preferred stocks on the other hand pay fixed dividends each year and have priority to the company's or corporation's earnings.

Key Points:

1. A stock is a form of security that indicates the holder has proportionate ownership in the issuing corporation. 2. Corporations issue (sell) stock to raise funds to operate their businesses. There are two main types of stock: common and preferred. 3. Stocks are bought and sold predominantly on stock exchanges, though there can be private sales as well, and they are the foundation of nearly every portfolio.