Stock is a piece of ownership in a public company. When a privately owned business issues shares of stock to the public, it is called an initial public offering (IPO). Companies sell their stocks to raise money so that they can pay off debts, launch new products and expand operations. When a company does well, its stock prices rise and shareholders make money. Companies also sometimes issue dividends to their shareholders. Investors can also receive votes in shareholder meetings. Most people use stocks as one of the core tools in their savings portfolios to grow their money and meet long-term financial goals such as retirement.

A stock’s value depends on a number of factors, including demand and supply. When demand for a stock exceeds its supply, the stock’s price rises. When the opposite is true, a stock’s price falls. For example, if a company’s earnings per share are low or if a competitor announces a new product that could steal market share, a stock’s price may fall.

Companies often hold reserves of their own stock to cover the risk that they may have to sell at a loss to meet obligations. The reserves are known as safety stock. If a supplier experiences a problem or the government passes a law that affects production, safety stock can help the company keep its promise to customers. Likewise, safety stock can help protect against disruptions caused by natural disasters or other events that prevent the company from delivering its goods and services on schedule.

Most stocks are traded on a stock market, which is a system of buyers and sellers that uses computers to record transactions. Investors can buy and sell individual stocks, or they can invest in mutual funds or exchange-traded funds (ETFs) that pool together a group of different stocks. Some investors may want to build a portfolio of individual stocks, but it can take significant time and research.

The most common type of stock is common stock, which offers voting rights to shareholders and the possibility of both dividends and price appreciation. Other types of stock include convertible preferred stocks, which start out as preferred and can be converted to common at a later date, and treasury stock, which is stock that a business repurchases from the market and holds on its balance sheet.

Stock can be a great way to save for the future, but it isn’t without risk. A company that suffers a major setback may see its stock price plummet, and you may lose more money than you put in. That’s why most investors seek to diversify their portfolios with a mix of stocks from large and small companies in several industries, to reduce the likelihood that all of their investments will be affected at the same time.