When you invest in a stock, you’re buying a piece of ownership in a publicly traded company. Companies raise money through stocks when they need capital to expand their business, develop new products or hire more employees. Investors hope that their shares gain value over time and they can sell their stocks for more than they paid to buy them.

Imagine you want to start a cupcake shop, but you only have $1,000 to get it off the ground. You could sell stock to friends and family members for that amount, giving them a stake in the business and a chance to participate in any profits. You’d then have a lot more funds to invest in other aspects of the business, like purchasing flour, icing and cupcake tins.

If you’re a shareholder in a company, you aren’t entitled to a parking spot in the lot or rubbing elbows with the corporate bigwigs. What you do receive are dividends and a potential increase in the price of your shares (capital appreciation). Those two factors are the only way you can make money from stocks.

To purchase stocks, you need to open an investment account with a financial institution. You can do this through a bank, a full service broker, mutual fund company or some insurance companies. Once you have an account, you can then determine which shares to buy and how much you’re willing to invest.

A stock’s price fluctuates up and down, depending on supply and demand. If there are more people willing to sell their shares than there are buyers, the stock’s price will decrease. Similarly, if there are more investors buying the stock than selling it, the stock’s price will increase.

You can also find out how a stock has performed in the past by looking at its historical returns. However, it’s important to note that every investment has some level of risk and that history may not be indicative of future performance.

There are different kinds of stocks, too, including common, preferred and restricted shares. Each has its own benefits and drawbacks, but all stocks offer growth potential through capital appreciation.

The size of a company is another factor to consider when choosing a stock to invest in. Shares in larger companies are known as large-cap stocks and those in smaller companies are called small-cap stocks. There are even smaller shares, which are known as penny stocks, but these are typically very speculative and not very profitable for shareholders.

While all investments come with some degree of risk, stocks have historically provided higher returns than other asset classes. That doesn’t mean you can’t lose money by investing in stocks, but if you stick with them over the long term, you should be able to earn good returns. Just be sure to weigh your options carefully, especially in terms of how long you’re willing to hold on to the stocks and how much growth you want to see from them.