A stock is an ownership share of a company. A stock holder has rights and privileges that vary depending on the company, but all stocks have the same basic characteristics: ownership of a claim on the company’s assets and earnings. Stocks are traded on a stock market (which is more than just the New York Stock Exchange or Nasdaq), and are bought and sold by a wide range of investors, from individual retail investors to institutions like pension funds, insurance companies, mutual funds and exchange-traded funds. Moreover, corporations trading their own shares on the market are also major participants. In addition, a number of robo-advisors and other automated investment services use stocks as part of their portfolios.

While nothing is guaranteed when it comes to investing, stocks have historically outperformed other asset classes like bonds and savings accounts, over the long term. Many people choose to invest in stocks because of the potential returns, but other reasons may include wanting an ownership stake in companies they believe in or a desire to vote on company policies.

Typically, companies raise money by selling shares of their stock on the market, and they can then use those proceeds to grow their business. Investors in a company that has good financial management and a solid product or service are likely to see the value of their stocks rise over time.

The prices of individual stocks are determined by supply and demand, with the highest-demand stocks commanding the most money. A stock’s price can also be affected by how well the company is performing as a whole, such as when the company makes strong profits, which can lead to higher dividend payments to shareholders.

Aside from market factors, the value of a stock is also dependent on investor sentiment. When the market is worried about the economy, for example, stocks in sectors like information technology and consumer discretionary tend to decline. Conversely, when the economy is growing, sectors like energy and healthcare often increase, as consumers spend more on goods and services.

Many traders and investors also categorize stocks into groups based on their size or geography, such as large-cap stocks and blue chips. These categories can overlap, and investors should take the time to research individual stocks to make informed decisions.

In some cases, companies create different share classes that each have their own voting rights. Class A common stock, for instance, might give the owner one vote per share, while class B shares might have 20 votes per share. This is done to keep voting power with key players, such as founders.

Stocks are also grouped into various categories, such as sectors and industries, to help investors analyze risk and return potential. A sector is a broad grouping, such as energy or health care, and an industry includes specific subgroups, such as software, semiconductors, and computer hardware in the technology sector. These groups can help traders and investors decide whether to go long — that is, buy a stock with the expectation that its price will rise — or short, which involves borrowing a stock with the intention of buying it back later at a lower price.