Glossary
Stock
A share of ownership in a company, giving the holder a claim on part of its assets and profits and, usually, a vote on how it is run.
A stock is a unit of ownership in a corporation. Each share is an equal slice of the company, so holding 1% of the shares means owning 1% of the business: a proportional claim on its profits, its assets after creditors are paid, and usually its shareholder votes. Stocks are also called equities, and they are the main way individuals own a piece of public companies.
How it works
Companies issue shares to raise money without borrowing. The first public sale is an IPO on the primary market; after that, shares change hands between investors on exchanges such as the NYSE and Nasdaq, and the company receives nothing from those trades. The price at any moment is simply the level where the latest buyer and seller agreed.
Shareholders can earn a return two ways: a rising share price, and dividends if the company pays them.
Kinds of stock and the main risk
Most shares are common stock, which carries votes and the last claim on assets. Preferred stock usually pays a fixed dividend and ranks ahead of common holders but typically has no vote. Stocks are often grouped by size (large-cap, small-cap) or style (growth, value).
The central risk is that shareholders are paid last. If a company fails, lenders and bondholders come first, and common shares are often wiped out. Over long periods, broad stock markets have rewarded that risk with higher returns than bonds or cash, but with deep and sometimes lengthy declines along the way.