The value of a company when it is created is divided into shares. Each share is known as a stock and the stocks can be sold to individuals which effectively means they own part of the company and are entitled to a share of the profits and earnings of the company as well as voting rights in decisions to do with their share. This is documented in the form of a certificate, which proves ownership. An important feature of stock is its limited liability, which means if the company is not able to pay debts you won't be held personally liable. The maximum you can lose is the value of your investment and it won't affect your personal assets.
Stocks can be traded at exchanges where transactions take place on a trading floor and there are also ways to trade them electronically through a network of computers and now over the Internet. Stock markets exchange financial assets and are located all over the world. Changes in the market can affect the value of stocks due to supply and demand.
There are two types of stocks:
- Common – this allows stockholders to elect a board of directors and vote on policies. They only have rights to any assets if a company liquidates only after debtors; shareholders and preferred shareholders have been paid.
- Preferred – this gives stockholders a higher claim on the assets and earnings of the company but do not have any voting rights.
There are various ways to buy stocks and there are a number of brokers online where you can make an account and manage your portfolio of shares and which:
Revised September 22nd, 2015
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- Allows you to look at different investment products
- Allows you to view the pricing and rates of stocks
- Provides software that will allow you to use a platform and tools to manage your investments
- Offers ways to research
- Provides educational articles to help you navigate through the process