A stock is a share in ownership of a public company, and it represents your claim on the company’s assets and earnings. This is why it’s important to diversify your portfolio with a variety of stocks, both large and small. People buy and sell stocks for a variety of reasons: to grow their money over time, to profit from shorter-term stock price movements, or even to earn income by investing in dividend-paying stocks. Whatever your investment goals, it’s important to understand that there is no guarantee that you will make money by investing in stocks. In fact, many investors lose money.

The first step in owning stock is becoming a shareholder. Companies sell their shares to the public in an initial public offering, or IPO. During an IPO, the company discloses how many shares it will offer, and the offering price. The company then uses the funds raised by selling the shares to invest in its business. Shareholders may also receive additional benefits, such as a share in the company’s profits (dividends).

Once a publicly traded company has issued its shares, they are then sold on the stock market to other investors. Stock prices rise and fall based on a variety of factors, such as investor demand and the company’s business performance. Over longer periods of time, a company’s stocks will usually increase in value as it grows its sales and profits. In the short term, however, a stock’s price can be affected by everything from how much investors are willing to pay for it, to how much a company is spending on advertising.

In addition to price fluctuations, stock prices can be affected by news and events that affect the entire industry, or even the economy as a whole. This makes it essential to diversify your portfolio with a variety different stocks, both within the same industry and across industries, so that you can benefit from economic growth as well as avoid the effects of negative news.

Stocks are a staple of nearly every investment portfolio, but they carry significant near-term risk and should be viewed as long-term investments. This is why it’s important to invest in a diverse range of stocks and to maintain a properly balanced portfolio that includes both stocks and bonds.

There are different types of stocks, but the most common are called common stocks. A common stock gives its shareholders proportional ownership in a company and voting rights, meaning they have voice in decisions like management elections or structural changes in the business. A company can also issue other classes of stock, such as preferred, which generally give the owner a higher claim on a company’s assets but not voting rights.

The stock market is a two-sided marketplace where buyers and sellers communicate through orders that are made via brokers or online platforms. The order is executed when a buyer offers to buy the stock at the asking price or lower, and a seller accepts the offer. Traders often refer to the liquidity of a stock by its bid-to-ask spread. A tighter spread and larger volume of both bids and offers means a more liquid stock.