WHAT IS STOCK?

Stock is ownership in a company. Each share of stock represents a tiny piece of ownership. The more shares you own, the more of the company you own. The more shares you own, the more dividends you can earn when the company makes a profit.

In the financial world, ownership is called equity.

There are two primary classes of stock. Which one you choose depends on what you want from a stock.

Preferred stock typically pays regular dividends and is favored by investors who want income foremost from their stocks.  Common stock represents ownership of a company and may offer more rights and privileges than preferred stock.

Investors may purchase stock on the primary or secondary market.

A company sells its stock to the public on the primary market through its initial public offering. Investors may sell their shares through brokers to other investors on the secondary market. The secondary market is structured as either an auction market or negotiated market. The auctions are conducted on the major stock exchanges.  The NASDAQ is a negotiated market. Today it is even possible to trade stock on the Internet. One can find stock prices (quotes) in newspapers, on television, and on the Internet.

On the next screen, you will find out why companies sell stock in the first place.