What Is A Stock? Getting Started In The Stock Market And Understanding How It Works

Even with all the recent tumult and future uncertainty, the stock market remains one of the most potent ways to grow one’s personal wealth. However, for many who have limited knowledge of finance and economics, the mere concept of stocks can be daunting, let alone coming to terms with buying and trading them.

For those eager to break into the stock market, here is a quick primer on the absolute basics.

What Is A Stock?

A stock is, put simply, a portion of ownership in a given company. To buy stocks is to invest in a company and to become a partial owner of it. Buying one stock doesn’t typically amount to a significant percentage of a company, but if one were to buy 25 percent of stock available in a company it would be the same as owning a quarter of a company. Investors buy and sell stocks on a market like the New York Stock Exchange or the Nasdaq.

Making Money

There are two ways that buying stock can be profitable for investors. Firstly, the value of stocks may increase if a company becomes more successful. This means that stock bought at a lower price can be sold or traded for a profit down the line. Not every company is guaranteed to grow in this way, and therein lies the essential gamble of investing in the stock market. Secondly, most companies pay out dividends to stockholders on a semi-regular basis, usually quarterly.

Private vs. Public

Companies sell stocks in order to raise money for further growth. The process of first going from “private,” where ownership is entirely within the company and not for sale on the stock market, to “public” is referred as an “Initial Public Offering,” or IPO. Companies interested in raising more capital down the line can issue new stocks, but this runs the risk of upsetting established stockholders whose share in the company would be diluted.

How to Buy

Buying and selling stocks has traditionally required going through a stockbroker but now a number of online brokerage services are available that make the process exceptionally simple for first-time buyers. Some of the more well-known of these are E-Trade, Ally Invest, and TD Ameritrade. The recently released app Robinhood makes things even easier, making the stock market as simple as buying shoes from Amazon, without any sort of commission fee.