What is a stock? Shares, prices and market value explained simply
What you actually own when you buy a share, why stock prices move, and the few words every new stock trader needs to know.
A stock is a small piece of ownership in a company. Buy one share of a company with a million shares, and you own one-millionth of it. That simple idea is behind the whole stock market, and behind the indexes futures traders follow every day.
Why companies sell shares
A company that wants money to grow can sell pieces of itself to the public instead of borrowing. The first sale is called an IPO (initial public offering). After that, the shares trade between investors on an exchange; the company isn't involved in your trade at all. You're buying from another investor and selling to another investor.
Why the price moves
A stock's price is simply the last price a buyer and a seller agreed on. It moves when one side is more eager than the other. Over months and years, prices follow what investors expect the company to earn. Over minutes, they follow orders, news and emotion, which is the part day traders work with.
Long term, a stock follows the business. Short term, it follows the crowd.
Words you’ll see everywhere
| Word | What it means |
|---|---|
| Ticker | The short code for a stock, like AAPL for Apple |
| Market cap | Share price × number of shares: what the whole company is worth to the market |
| Dividend | Cash a company pays shareholders, usually every quarter. Many don’t pay one |
| Earnings | The company’s profit, reported every three months |
| Bid / ask | The best price buyers are offering and sellers are asking. See bid, ask and spread |
| Volume | How many shares traded in a period |
Stocks vs. index futures
An index like the S&P 500 is a basket of stocks, and ES futures track that basket. When you trade one stock, you're betting on one company and everything that can happen to it: earnings, news, a product launch, a lawsuit. That's more ways for a single stock to surprise you, and more opportunities for those who prepare. The series the stock indexes up close covers the baskets.
What’s next in this series
Next: how the stock market actually works, from exchanges and market hours to trading halts. If you're coming from futures, the comparison at the end of the series, stocks vs. futures for day trading, will help most.
This article is for education only and isn't financial advice. Trading stocks involves substantial risk of loss. Market rules differ by country and broker and can change; check your broker for the rules that apply to you.