What is a stock?

Fundamentally, a stock is simply a share of the ownership within a company. When buying a stock, what's really happening is that a small piece of that business is being purchased, meaning that if you own one share of Apple, you technically own a tiny fraction of the corporation itself.

But why do companies decide to issue stocks in the first place? Usually, it is because they themselves require money to grow. Through selling shares to the public, firms can raise funds that help them do a whole number of things, whether that be building new products, expanding into new areas, or hiring more employees. On the other hand, investors and shareholders are given a chance to take part in that company’s potential success.

There are two primary ways for investors to make money from stock ownership

• Dividends: A portion of the company’s profits is shared with shareholders in regular cash installments

• Capital Gains: Shareholders can sell stocks at a higher price if they increase in value and hold onto the difference as profit

However, it is worth noting that stock prices are additionally likely to go down, introducing a certain amount of risk. It happens fairly regularly that companies don’t do well, and therefore, shares lose value.

Stocks are primarily traded on stock markets, with the New York Stock Exchange (NYSE) and NASDAQ being the most notable examples. Prices are determined by the laws of supply and demand. If the consensus is that a company will perform well, both the demand and stock price will rise; if the opposite takes place, the price usually falls.

Stocks are not uniform, however, and they come in many forms. Below are a few key examples.

• Blue Chip Stocks: Shares in large and well-established corporations (Apple, Microsoft, etc)

• Growth Stocks: Shares in companies that are expected to grow quickly, usually in up-and-coming industries like tech

• Value stocks: Stocks whose market value is below their apparent worth (think “good money for value” stocks)

Understanding stocks is a crucial first step in learning and understanding how investing and trading function. Keep an eye out for upcoming articles where we will explore concepts like dividends, stock indexes, and more!

Our page is split into two parts. First, the education section, where we break down strategies and attempt to share our knowledge on investing and trading. Second, the Market Watch, where we will be highlighting interesting companies, trends, or opportunities. Just a reminder, we are NOT financial advisors, rather students learning alongside you, aiming to share our knowledge and curiosity, not tell you what to buy or sell.

To conclude, stocks may seem complicated, or simply like numbers on a screen, but they represent real companies that produce goods and services we use every day. By better understanding how they work, one can gain the skills that help make smart and informed financial decisions in the future.

Stay tuned for our next article, where we will discuss the question “What is the difference between investing and trading?”

If you have any questions, feel free to email us at

EITC.club@gmail.com

Written by Luca Y13, Ethan Y13, Deha Y13: