What are Stocks?
Written by True Tamplin, BSc, CEPF®
Updated on June 21, 2021
Stocks, also known as equity, are a security representing a holder’s proportionate ownership of a corporation.
Stockholders are therefore entitled to that portion of the corporation’s assets and earnings.
Companies issue stock in order to raise capital to finance future growth.
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Types of Stock
There are two types of stocks: common and preferred stock.
1.) Common Stock comes with the ability to cast votes at shareholder meetings and the right to receive dividends.
2.) Preferred Stock doesn’t come with the right to vote, but does come with the right to receive dividends prior to common stockholders and higher priority in getting paid back if the company goes bankrupt and is liquidated.
What is a Stock? Further Things to Know About Stocks
Stocks are primarily bought and sold on stock exchanges, such as the New York Stock Exchange (or NYSE), but can be traded privately as well.
Although the bond market is larger than the stock market, the stock market receives more press.
Historically, stocks have had a higher return than other types of investments over time.
The trade of stock is regulated by the Securities Exchange Commission, or SEC, in order to protect investors by maintaining a fair and orderly functioning of the securities markets.