<p>A <strong>stock</strong> is a unit of ownership in a corporation, representing a claim on part of the company’s assets and earnings. When you buy a <a href="/NewSite/encyclopedia/share/" class="ency-link">share</a> of stock, you become a shareholder and gain certain rights, such as voting on corporate matters and receiving dividends if the company distributes profits.</p>

<h2>How It Works</h2>
<p>Companies issue stock to raise capital for expansion, research, or debt repayment. The initial sale occurs in the <strong>primary market</strong> through an initial public offering (IPO) or a private placement. After issuance, shares trade among investors on exchanges or over‑the‑counter markets in the <strong>secondary market</strong>, where prices fluctuate based on supply, demand, and perceived value.</p>
<ul>
<li><strong>Par value</strong> – nominal amount assigned at issuance, often minimal.</li>
<li><strong>Market price</strong> – current price investors pay, driven by trading activity.</li>
<li><strong>Dividends</strong> – periodic cash or stock payments from earnings, not guaranteed.</li>
<li><strong>Voting rights</strong> – usually one vote per share for electing directors and approving major actions.</li>
</ul>
<p>Investors can earn returns through price appreciation (selling at a higher price than purchase) and dividends. Brokerage accounts facilitate buying and selling, and orders can be market, limit, or stop types.</p>

<h2>Why It Matters</h2>
<p>Stocks are a fundamental building block of personal wealth and institutional portfolios. They offer growth potential that historically outpaces inflation and fixed‑income assets over the long term. For example, an investor who bought shares of a broad market index fund in 2000 and held them through 2020 saw the investment grow by more than 250 %, illustrating how ownership in companies can translate into substantial returns.</p>
<p>Understanding how stocks work helps individuals make informed decisions about saving for retirement, funding education, or achieving other financial goals, while also recognizing the risks of price volatility and company‑specific factors.</p>