What Are Stocks?
A stock (or also referred to as equity) is an financial security which represents the ownership of part of a company. This entitles the holder of the stock to a definite percentage of the profits and assets of the company, measured against how much stock they personally own. Usually, units of stock are known as “pieces.”
There are three types of ownership: publicly traded, preferred stock, and non-listed. Publicly traded stocks are those in which the company issues shares to buyers who are brokers or traders. They are traded on stock exchanges such as the New York Stock Exchange (NYSE). Preferred stocks are stocks which have been previously issued but not yet traded on a public exchange. Non-listed stocks, on the other hand, are those in which the company issues a warrant or an option to purchase an equal number of shares of stock which are not traded on any exchanges.
The major stock exchanges in the US are the NASDAQ, the AMEX, and the NYSE. These stock exchanges buy and sell shares from and to various companies. Buyers can buy shares from these companies for either an initial purchase price or a margin. The margin is, however, paid by the buyer of the shares, although it is not mandatory.
The company issuing the stock usually holds the majority of the shares, with the remainder being held by a Trustee or Board of Directors. The shares are then sold to investors, who can either buy or sell shares at the current market price, or exercise one or more of their derivative options. When the stock goes up in value, so does the value of the option or right to buy. When the stock goes down in value, so does the option or right to sell.
When an investor owns shares in a company, they are said to be an owner of that particular stock. To some, this is just a technical distinction without any real world meaning. For other investors, however, ownership means much more than this. To them, shares in a company represent a portion of that company’s equity or ownership structure. They have a right, perhaps for the lifetime of the stock itself, to a certain percentage of ownership.
Generally speaking, when a shareholder wants to increase his or her ownership in a business, he or she must first request additional shares from the company. The shareholder will typically have to wait a period of time, often months, before his or her request is approved. Once approved, the shareholder will now have a proportionate share of ownership in the company. This is how corporations stay in business and continue to prosper. Stock ownership is just one way that the value of a company is valued, and it certainly has its place in the economy.