Stocks are the shares of a company that give the holder a claim to the equity of the company. Stocks are traded on public markets and their price is determined by market demand. Companies issue stock as a way to generate capital (equity) that can be used to grow and improve the company’s operations.
Stock holders are owners of the company and have a right to elect the board of directors and participate in the revenue stream of the company. Because stock holders are the last in line of all the owners of equity in the company, buying stock in a company involves risk. The investor hopes that the company will provide a return to its stock holders by issuing dividends or by improving its operations and increasing the value of the stock.
