Stocks are investments that represent ownership — or
equity
— in a corporation. When you buy stock, you have an ownership
share — however small — in that corporation and are
entitled to part of that corporation's earnings and assets.
Stock investors — called
shareholders
or stockholders — make money when the stock increases in value or when the
company that issued the stock pays dividends, or a portion of
its profits, to its shareholders.
Some companies are privately held, which
means the shares are available to a limited number of people,
such as the company's founders, its employees, and investors
who fund its development. Other companies are publicly traded,
which means their shares are available to any investor who wants
to buy them.
The IPO
A company may decide to sell stock to the
public for a number of reasons such as providing liquidity for
its original investors or raising money. The first time a company
issues stock is the
initial public offering (IPO), and the company receives the proceeds from that sale. After that,
shares of the stock are traded, or bought and sold on the securities
markets among investors, but the corporation gets no additional income.
The price of the stock moves up or down depending on how much investors
are willing to pay for it.
Occasionally, a company will issue additional shares of its stock, called a
secondary offering,
to raise additional capital.
