What is a Stock?
Reading financial papers or watching a finance channel can be much more confusing than it needs to be if you don't know what a stock is.
Stock is bought for the pursuit to make money, but what exactly is it and how does it make you money? We need to begin by explaining what a corporation is.
A corporation is a type of business entity.
Other business entities include a sole proprietorship, which is run and owned by one person, and a partnership, which is usually run and owned by two or more people.
A corporation is owned by many people.
These people are called the company's shareholders.
Each one of the shareholders own a part of the company.
They elect the board of directors who hire the officers that run the company.
While shareholders don't make decisions such as where to spend money and what to market, they do decide who will make those decisions.
In order to become a shareholder, you must buy a share of that company.
This is called a share of stock.
If you buy one share of stock of Apple, you have become an Apple shareholder.
When you hear 'stock' this is actually a general term which could mean one or more shares.
You can buy one share of stock, or you can buy a thousand shares of stock.
It is up to you.
Why do corporations issue shares of stock? They issue stock to raise money for their company.
The money they receive is referred to as equity and is used as capital for the company.
For example, let's say company A decides to incorporate and issue stock.
They may issue 100,000 shares of stock, sell them for $5 each, and raise $500,000 in capital for their business use.
If you buy one or more of these shares, you will be part owner of company A.
How do stocks make money? They increase in value through supply and demand.
If you buy one share of Company A stock for $10, you have a purchase price valued at $10.
If a lot of people want to buy the stock, they will have to pay a higher price if there are fewer people willing to sell.
It is this supply and demand principle that drives up the price of any product.
The more demand the higher the price and the fewer supplies, the higher the price.
If the value then goes up to $13, you can sell it and make a $3 profit.
You can also make money directly from the company in the form of dividends.
If you have 100 shares of a company that issues a 25 cent dividend every quarter, you will be paid $25 every quarter, or $100 a year.
Not all companies issue dividends every year.
Stock is bought for the pursuit to make money, but what exactly is it and how does it make you money? We need to begin by explaining what a corporation is.
A corporation is a type of business entity.
Other business entities include a sole proprietorship, which is run and owned by one person, and a partnership, which is usually run and owned by two or more people.
A corporation is owned by many people.
These people are called the company's shareholders.
Each one of the shareholders own a part of the company.
They elect the board of directors who hire the officers that run the company.
While shareholders don't make decisions such as where to spend money and what to market, they do decide who will make those decisions.
In order to become a shareholder, you must buy a share of that company.
This is called a share of stock.
If you buy one share of stock of Apple, you have become an Apple shareholder.
When you hear 'stock' this is actually a general term which could mean one or more shares.
You can buy one share of stock, or you can buy a thousand shares of stock.
It is up to you.
Why do corporations issue shares of stock? They issue stock to raise money for their company.
The money they receive is referred to as equity and is used as capital for the company.
For example, let's say company A decides to incorporate and issue stock.
They may issue 100,000 shares of stock, sell them for $5 each, and raise $500,000 in capital for their business use.
If you buy one or more of these shares, you will be part owner of company A.
How do stocks make money? They increase in value through supply and demand.
If you buy one share of Company A stock for $10, you have a purchase price valued at $10.
If a lot of people want to buy the stock, they will have to pay a higher price if there are fewer people willing to sell.
It is this supply and demand principle that drives up the price of any product.
The more demand the higher the price and the fewer supplies, the higher the price.
If the value then goes up to $13, you can sell it and make a $3 profit.
You can also make money directly from the company in the form of dividends.
If you have 100 shares of a company that issues a 25 cent dividend every quarter, you will be paid $25 every quarter, or $100 a year.
Not all companies issue dividends every year.
Source...