What Are Stocks?


Stocks are investments that allow investors to purchase shares of a company. They are an important part of the economy. The value of a stock is based on how well a company performs. Investors usually buy stocks based on the expectation of corporate earnings.

There are many types of stocks. These include blue-chip stocks and penny stocks. Blue-chip stocks are large, well-capitalized companies. Penny stocks are smaller companies that trade below a certain dollar threshold. Some of the more popular dividend-paying stocks are known as blue-chip stocks.

Common stock is issued by a corporation in order to raise capital. It also allows an investor to participate in the future profits of the company. In addition to being able to receive dividends, common stock also gives an owner voting rights at shareholders meetings. Other types of stocks can have distinctive ownership rules and share values.

A stock can be traded in a secondary market, which is the general marketplace for shares of a company. This market includes both public and private shares. When sellers outnumber buyers, the price of a stock falls. On the other hand, when more buyers enter the market, the price of the stock increases. Traders may buy or sell a security by borrowing a certain amount of stock from a financial institution. Another method of speculation involves short selling, whereby an investor borrows a specified amount of stock from a lender and then sells the stock at a lower price.

A corporation is an entity that can own property, borrow money, and file its own taxes. Unlike an individual, a corporation is treated as a legal person, and its ownership rights are governed by federal regulations. Those laws protect consumers and investors, and prevent fraudulent practices.

Investors generally prefer publicly-traded stocks. These are companies that have been listed on the primary or secondary stock markets. Publicly-traded common stocks offer the possibility of dividends and price appreciation. Companies issue stock to raise funds for current operational needs, and to help fund the growth of their business. During an IPO, a corporation lists its stock on a public stock exchange. However, some companies choose to list their shares on home country exchanges.

Many stocks do not pay dividends, but they reinvest their profits in the business. If a company is a profitable one, investors may enjoy price appreciation, which is the increase in the value of the share over time. As a result, some investors choose to purchase preferred stocks, which do not have voting rights. Preferred stocks typically offer a fixed dividend payment for an indefinite period.

Shares of a company can be purchased and sold privately, or on a stock exchange. Most stock transactions are heavily regulated by government agencies. For example, brokers are required to execute the trade and provide a commission. Likewise, government regulation regulates the distribution of securities and the activities of stock managers.

Although the stock market can seem like an unfamiliar language, it is a vital part of the economy. Investors who take the time to learn about it can make wise investment choices.