A stock is a piece of ownership in a company, and it gives you the opportunity to share in its successes (and failures) over time. Public companies sell their shares on a stock market, like the New York Stock Exchange or Nasdaq, so that they can raise money from investors to grow their businesses. Investors who buy these stocks receive any dividends that the company pays, and they also get to participate in any increase in the value of a company’s stock.

When you buy a stock, it’s important to understand what you’re getting into, which includes knowing how much of the company you actually own. Most shareholders own common stock, which comes with voting rights and sometimes pays dividends, but there are other kinds of shares as well.

Ultimately, it’s the success of a company that determines the value of its stock. That’s why it’s crucial to follow industry trends, read news about a company, and learn to assess its business model. You’ll also need to know the basics of the stock market, which works through a network of exchanges that connect buyers and sellers. Buyers offer a “bid” that’s lower than the amount they’re willing to pay for a stock, while sellers set an asking price higher than that. The difference between these two prices is called the bid-ask spread. If the bid-ask spread is too large, a trade won’t occur.

Another key factor to consider is how a stock’s performance compares with that of its peers. For example, if a stock falls behind its competitors in terms of revenue and profit growth, that may be a warning sign. Similarly, a stock that’s trading at an unusually high or low valuation might be a red flag.

Other factors to keep in mind include how a stock performs in relation to its sector and the overall market. For instance, if the economy is struggling, industries like information technology, consumer discretionary, and telecommunication services may see their shares suffer while sectors like utilities, food processing, and health care perform better.

It’s also worth considering whether a company is headquartered in a foreign country. Exposure to a foreign currency’s fluctuations could affect the value of your investment, and political or economic events in that country can have an impact as well.

Investors should also make sure they have a plan for how long they expect to hold their stocks. This will help them choose which stocks to buy, and it’ll also influence how much risk they take on with each purchase. As a general rule, longer-term investors tend to have greater returns than short-term ones. However, everyone has different goals and expectations for their investments.