A stock, also known as a share or equity, represents a unit of ownership in a company. When an individual or entity buys a stock, they are buying a small piece of the company, and as a shareholder, they are entitled to a share of the company’s profits, assets, and voting rights.
When a company wants to raise money, it can do so by issuing stocks, which are then sold to the public on a stock exchange such as the New York Stock Exchange (NYSE) or the Nasdaq. The price of a stock is determined by the demand for the stock in the market, and it can fluctuate based on a variety of factors such as the company’s financial performance, overall market conditions, and economic indicators.
Stocks are considered to be a higher-risk, higher-return investment because the value of the stock can go up or down depending on the performance of the company and the overall market conditions. When a company performs well, the stock price usually goes up, and shareholders can make a profit by selling their shares at a higher price than they bought them for. On the other hand, if a company performs poorly, the stock price may decrease, and shareholders may lose money.
Stocks can be a good investment for individuals who have a long-term investment horizon, as well as a higher risk tolerance. They are also a good option for those who want to diversify their portfolio, as they are not correlated to interest rates and bond prices as much as other types of investments.