What are stocks?

The answer to that question is fairly simple: stocks are shares in the ownership of the earnings and assets of a company. Companies issue shares to raise capital to fund their operations.

A company first lists its stock on an exchange by making an initial public offering (IPO). Since this is the first time that a company’s shares are publicly available, interested buyers are lined up by stock brokers. As of the date the company’s stock is scheduled to be listed on an exchange, the stock becomes freely traded on that exchange.

When you buy a stock, you are buying an equity share in a company, and those shares come with certain rights. For example, as a shareholder, you have the right to cast votes at shareholders’ meetings, the right to share in the profits of the company through dividend payments or appreciation in share price, and the right to sell your shares on the market.

The type of stock you will most frequently encounter is a common share in a company. There are several other types of stock: preferred shares (that can be thought of as being a hybrid of bond and a stock; investors interested in steady income tend to invest in these) and restricted shares, which have different voting rights and entitlements to a company’s assets than common shares do.