A stock represents a share in the ownership of a company, including a claim on the company’s earnings and assets. This partial ownership allows the investor to potentially earn a profit when the company’s value rises, and may also provide an opportunity to vote on important decisions affecting the company. Stocks are purchased and sold through the stock market, which includes exchanges like the New York Stock Exchange and NASDAQ.

Typically, companies raise money through the sale of shares in order to grow or improve their financial position. This capital infusion can help companies expand their business, pay off debt, or fund growth plans they cannot or do not want to finance with additional loans. In the short term, the price of a company’s stock has more to do with supply and demand in the market than with any actual financial results.

Investors can choose to divide stocks into a variety of groups to find their ideal investments. One popular grouping is by company size or market capitalization, which can help you focus on established, large-cap companies that are more stable. Another popular division is by industry, which can give you a broader range of investment opportunities. You can invest in sectors such as technology, health care, energy, and consumer staples that offer different potential returns while helping you diversify your portfolio.

Stocks can also be grouped by style, which can help you match your investment strategy to particular stock types. For example, some investors are interested in “growth” investing in young, fast-growing companies. Others prefer to buy stocks that pay dividends, which can be a steady source of income. You can also compare your stock performance against a benchmark, such as a market or sector index, to see how well you’re doing and whether your portfolio is meeting its goals.

Buying and selling stocks are an important part of the financial market, which is where millions of people invest their savings and retirement funds. The stocks you buy and sell are the vehicles through which you can make investments in many aspects of our economy, from retail businesses to technology giants. These securities are essential to the functioning of the modern global economy, and their prices have historically reflected broader socioeconomic trends.

When a stock’s demand increases, often due to positive news or profit outlook, its price tends to rise. When supply outweighs demand, however, largely as a result of negative sentiment or poor performance, the price of a stock tends to fall. This constant flux in supply and demand is the essence of market discovery, a process where buyers and sellers collectively shape the fair price of a stock based on available information. For more insight into the forces that drive stock prices, talk to your advisor and keep an eye on market news. This will help you understand the big picture and make more informed investment decisions.