Stock is an investment in a company, and it allows you to share in the company’s profits. When companies seek to grow, they often need additional capital for things like designing new products and expanding into new markets. Instead of going to banks for loans, they issue shares in order to raise this money. Anyone can buy those shares, and if the price rises over time, investors make a profit. But stocks can also go down, and those who own them will see their investments decline in value. This is why it’s important to understand exactly what a stock is before jumping into the market.

Most people have heard that investing in stock can be a great way to build wealth over the long term. And it’s true that, over the long run, stocks have outperformed nearly any other major asset class. But many individuals don’t truly know what a stock is or how it works. And even those who do may not fully understand what they’re getting into.

When most people hear the word “stock,” they think of the price of a single share in a company. In fact, it’s possible to own a fraction of a company through a mutual fund or an exchange-traded fund, and these types of investments can be more easily accessible than individual shares in a company.

A stock represents ownership of a corporation and can be bought and sold on a public stock market. The value of a share can fluctuate, but it’s typically based on the company’s performance and future prospects. For example, a growing business will likely see its share price rise over time, while a declining company’s stock will fall.

Besides the company’s performance, it’s important to consider the overall economic environment when investing in stocks. A stock’s price can be influenced by things like inflation, political turmoil and the overall economy. But the most influential factor is how the company is performing, and if it’s growing sales and profits.

Stocks are typically grouped into categories based on their size, known as their market capitalization. There are large-cap, mid-cap and small-cap stocks. And then there are micro-cap stocks, which are shares in very small companies that may not be profitable yet. It’s also possible to group stocks by sector. For example, when the economy is doing poorly, sectors like information technology and consumer discretionary may suffer. But sectors like utilities, health care and consumer staples tend to hold up better because people still need to spend money on those things.

Stocks can be bought and sold through brokers, who are essentially authorized dealers on a stock exchange. These individuals will continuously list a bid and ask for each stock, with the highest offered buying price being known as the “bid,” and the lowest offered selling price being known as the “ask.” Market makers are also allowed to buy and sell shares instantaneously. This is what enables individual investors to trade stock without the need for brokers to wait for buyers to come along.