A stock is a security issued by a given company listed on an exchange, entitling its owner to a share of the company assets and potential profits.
Definition of stock
A stock is a share in the ownership of the issuer's business. When buying stock in a given company, an investor acquires a stake in the company and gets to claim a part of its profits, which are paid out as dividends.
If the issuer's business is doing well, and their goods/services are in demand, the stock price might grow. This makes it possible for the stockholders to, in their turn, sell their securities to make a profit.
However, the issuer does not guarantee that its stock price will grow and that the company will pay dividends. Much depends on the general market situation and sustainable growth of the global economy.
Types of stocks
Simple stocks are the most popular type of securities. They are available on specialised trading platforms and give their owner the right to vote at shareholders' meetings, as well as receive dividends.
Privileged stocks offer their owners some bonuses, such as larger dividends and earlier dividend payment dates compared to those meant for shareholders of simple stocks.
The stockholders of privileged stocks are the first ones to get paid in the event that the company goes bankrupt and its property goes on sale. However, they may not participate in stockholders' meetings. Moreover, privileged stocks are less liquid and volatile than simple ones.
Difference between stocks and bonds
Stocks are securities that provide investors with a share of the issuer's business. Stockholders may claim a part of the potential profits, and holders of large blocks of stocks may participate in the management of the company.
Bonds are liabilities of the issuer that give their holder the right to a preset or fixed income. Bondholders are creditors, and do not become the owners of the company they acquire bonds from, nor can they manage it.
The stock market
The stock market is a network for buying and selling securities or assets by interested parties according to set rules. The stock market comprises exchanges and OTCs, as well as alternative trading systems.
Institutions facilitating stock market operations include exchange platforms, clearing chambers, depositaries, and registrars. The main factors influencing stock prices on platforms are demand and supply.
Risks for stockholders
- Volatility of securities
- Stock growth is subject to the company's business and the actions of its management
- Stock growth is subject to the actions of competitor companies
- Dividend payments are not guaranteed and could be changed or eliminated
- Stock growth is subject to the status of the global economy and politics, as well as other global factors