Whether you call it shares, equity or stock, this financial instrument represents a claim on a company’s assets and earnings. While stocks can be a lucrative investment over time, they’re often volatile and carry some risk. It’s important to understand what you’re getting into before investing in a company.

Public stock is what most people think of when they hear the word “stock.” This type of stock is the kind you can buy and sell through brokerages, trading apps or other online platforms. It is listed on exchanges like the New York Stock Exchange (NYSE) and Nasdaq, which make it accessible to everyday investors. This type of stock also opens companies up to more regulation.

Stock can generate returns for investors in two main ways: capital appreciation and dividends. Capital appreciation occurs when the value of a share increases over time, which can happen when a company becomes more profitable or experiences a surge in investor confidence. This increase in value allows you to sell your shares for more than what you paid for them.

Dividends, on the other hand, are payments a company makes to shareholders for the right to use their profits and assets. A dividend is typically a small percentage of the company’s profit, which is calculated quarterly or annually and distributed to shareholders. Companies are legally required to pay out any money they earn in dividends to investors. Investors can then choose to reinvest these dividends or take the cash they receive.

There are many types of stock, though most of them trade on one or more exchanges and can be purchased by anyone with a brokerage account. These accounts can be funded with after-tax dollars, and they can allow you to diversify your portfolio by investing in different stocks across industries, regions or sectors.

When buying stocks, it’s best to start small. This way, you can learn the basics and get a feel for how the process works before making larger investments. You can find a brokerage or trading app and then open an account with the amount you wish to invest. Once you’ve deposited funds into the account, you can begin placing orders. The simplest type of order is called a market order, in which you enter the ticker symbol of the stock you want to buy and then designate how many shares you want.

The next step is to research potential stocks and then decide how much you want to invest in each one. You should always consider your long-term investment goals when choosing a company to purchase. Ideally, you should also build a diversified portfolio of stocks to mitigate your risks and maximize your potential for growth over the long term. It’s also a good idea to read analyst reports, which provide insights from finance professionals whose job it is to follow and assess companies. These reports often include price targets and ratings, such as a buy, hold or sell rating.