Learn the fundamentals of equity ownership, how stock exchanges work, market capitalization, reading quotes, market hours, IPOs, corporate actions, and placing your first trade.

Owning a Piece of a Company

When you buy a stock, you are purchasing a small ownership stake — called equity — in a publicly traded company. If a company has issued 1 million shares and you own 1,000 of them, you own 0.1% of that company. This entitles you to a proportional claim on the company's assets and earnings.

Stocks are also called shares or equities. These terms are used interchangeably, though "equity" tends to appear in more formal financial contexts. The key idea is simple: buying a stock makes you a part-owner of a real business.

Why Companies Issue Stock

Companies need capital to grow — to build factories, hire employees, develop products, or expand into new markets. They have two primary options:

1. Debt financing: Borrow money through loans or bonds. The company must pay interest and eventually repay the principal, regardless of how the business performs.
2. Equity financing: Sell ownership stakes (shares) to investors. The company receives cash but gives up a portion of future profits and control.

Issuing stock is attractive because the company gets permanent capital with no obligation to repay. If the business fails, shareholders lose their investment but the company doesn't owe them anything. This is fundamentally different from debt.

Example: When Apple went public in 1980, it sold 4.6 million shares at $22 each, raising about $101 million. That capital helped fund Apple's growth, and those original shares (adjusted for splits) would be worth hundreds of thousands of dollars today.

Common Stock vs. Preferred Stock

There are two main types of stock:

Common Stock

• Voting rights: Usually one vote per share on corporate matters (board elections, mergers)
• Dividends: May receive dividends, but these are not guaranteed and can be cut
• Price appreciation: The primary way common shareholders profit — buying low and selling higher
• Last in line: In bankruptcy, common shareholders are paid last, after creditors and preferred shareholders

Preferred Stock

• Fixed dividends: Typically pays a set dividend amount, similar to a bond coupon
• Priority: Receives dividends before common shareholders and has higher claim in bankruptcy
• Limited upside: Price appreciation is usually more limited than common stock
• No voting rights: Most preferred stock does not carry voting privileges

Most retail traders and investors deal exclusively with common stock. When someone says they "bought AAPL," they mean common shares of Apple Inc.

How Shareholders Make Money

There are two ways to profit from owning stock:

1. Price Appreciation (Capital Gains)

If you buy 100 shares of a stock at $50 and sell them at $75, your profit is $2,500 (minus fees and taxes). This is a capital gain. The stock price rises when more buyers than sellers compete for shares — typically because the company is growing earnings, releasing new products, or benefiting from favorable industry trends.

2. Dividends

Some companies distribute a portion of their profits to shareholders as dividends. These are typically paid quarterly. For example, if a company pays a $1.00 annual dividend per share and you own 500 shares, you receive $500 per year in dividend income.

Not all companies pay dividends. High-growth companies like Tesla (TSLA) often reinvest all profits back into the business. Established companies like Coca-Cola (KO) or Johnson & Johnson (JNJ) have paid increasing dividends for decades.

What Determines Stock Prices

Stock prices are set by supply and demand in the open market. If more people want to buy a stock than sell it, the price rises. If more people want to sell than buy, the price falls.

Several factors influence this supply-demand balance:

• Company earnings: Higher-than-expected profits usually push prices up
• Revenue growth: Increasing sales signal a healthy, expanding business
• Industry trends: A booming sector lifts many stocks within it
• Economic conditions: Interest rates, inflation, and GDP growth all affect stock prices
• Market sentiment: Fear and greed drive short-term price swings, sometimes irrationally

The key insight: A stock's price at any moment reflects the market's collective opinion about that company's future earnings. When that opinion changes — due to an earnings report, a news event, or a shift in the economy — the price adjusts accordingly.

Stocks in the Modern Era

Today, owning stock is easier than at any point in history. Online brokers like Fidelity, Charles Schwab, and Interactive Brokers allow you to buy shares in seconds from your phone. Many brokers now offer fractional shares, meaning you can invest as little as $1 in companies like Amazon (AMZN) whose shares trade for over $180.

This accessibility is powerful, but it also means you need education before putting real money at risk. Understanding what a stock actually is — an ownership stake in a real business — is the essential first step.

Key takeaways

• A stock represents fractional ownership (equity) in a publicly traded company
• Companies issue stock to raise capital for growth without taking on debt
• Shareholders can profit through price appreciation and dividend payments
• Common stock carries voting rights while preferred stock typically offers fixed dividends
• Stock prices are determined by supply and demand in the open market

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What's in the full course

1. 1What Is a Stock?Reading
2. 2How Stock Exchanges Work🔒
3. 3Market Cap & Stock Classification🔒
4. 4Reading Stock Quotes & Tickers🔒
5. 5Market Hours & Sessions🔒
6. 6IPOs & Secondary Offerings🔒
7. 7Dividends, Splits & Corporate Actions🔒
8. 8Your First Stock Trade🔒