What is a Stock?
A stock is a form of investment in a company or corporation. When someone purchases a stock in a company, they become what is known as a stockholder or shareholder, and will have a small piece in the ownership of the business. When the value of the stock increases throughout time, the shareholder has the option to sell the stock for a profit.
There are many types of stocks, but the two that are most well-known are common stocks and preferred stocks. With common stocks, shareholders generally have a better source of return on investment in the long-term, and they are also allowed voting rights when it comes to company matters and decision making. If, however, the company were to claim bankruptcy, common stock shareholders will be the last to receive their portion of the money.
With preferred stocks, shareholders receive a monthly or quarterly payment of dividends and provide a more stable stream of income compared to common stocks. In the event the company were to claim bankruptcy, those who invested in preferred stocks will receive their portion of the money before common stock shareholders, and the payments may be of a higher amount.
Companies and corporations issue stock to the public as a way to help raise money to operate their business. Stocks are generally bought and sold on stock exchanges but can also be purchased privately. There are many options available and individuals can purchase a number of stocks to increase the diversification in their portfolio and the potential for profits over time.