A stock is an ownership share in a company, usually representing a fraction of the total shares in a publicly traded corporation. As a shareholder, you are entitled to a portion of the company’s profits, which is what drives a stock’s value over time.

Traders buy and sell stocks in order to capitalize on small changes in their price. Investors, on the other hand, are more concerned about long-term growth and hold their investments for years. Investors often build a portfolio of many different stocks, which allows them to diversify their risk.

If a stock becomes more valuable, a shareholder can sell their shares for more than they bought them for. This is called capital appreciation, and it’s what most investors are after. While stocks do have a history of producing high returns, it’s important to remember that over the long term, stocks can be volatile and even drop in value.

Stocks are generally grouped into categories by the size of the companies that own them, as measured by their market capitalization. There are large-cap stocks, mid-cap stocks, and small-cap stocks. Very small companies are called microcap stocks. There are also penny stocks, which tend to be very speculative and don’t pay dividends.

A stock’s price fluctuates in response to a number of factors, including the overall health of the economy and market, as well as potential good or bad news about individual companies. However, the fundamental driver of a stock’s price is supply and demand. The more people who want to buy a stock, the higher its price. Conversely, if more people want to sell a stock, the lower its price will be. The field of fundamental analysis attempts to understand the factors that drive these prices, and some have developed models for predicting future stock prices.

In practice, investors can use this information to make informed decisions about which stocks to own and when. The most common mistake new investors make is trading too frequently, which can lead to worse performance than a patient, long-term approach. Other important considerations include fees and taxes. Most brokerages now offer commission-free trading, but fees still add up, and short-term capital gains are taxed at a higher rate than long-term capital gains.

If you are planning to invest in stocks, we recommend creating a diversified portfolio that includes both large- and small-cap stocks. This will help you reduce your overall risk and maximize your potential for returns. You should also consider the impact of short-term market fluctuations on your portfolio, and be willing to adjust your holdings when necessary. Finally, be sure to take into account your own personal investing goals and comfort level with risk when choosing which stocks to invest in.