Stocks

What Are Stocks?

Stocks represent ownership shares in a company. When you buy stock, you're purchasing a piece of that business — including a claim on its assets and profits. Companies issue stocks mainly to raise capital for operations, expansion, or debt reduction.

There are two main types of stocks: common stock and preferred stock , each offering different rights and benefits to shareholders.

Common Stock vs. Preferred Stock

• Common Stock :
  Owning common stock usually gives shareholders the right to vote on important corporate matters like electing board members or approving major business decisions. However, if a company goes bankrupt and its assets are sold off, common shareholders get paid last — only after all debts and preferred claims have been settled.
• Preferred Stock :
  Preferred shareholders typically do not have voting rights , but they enjoy a higher priority when it comes to receiving dividends and asset distribution. This means preferred shareholders get paid before common shareholders — both in regular dividend payouts and during liquidation. If a company struggles financially, preferred stockholders are more likely to receive some return.

Where Are Stocks Traded?

Stocks are bought and sold in two main types of trading environments:

• Lit Pools :
  These are public exchanges where all traders can see the order book — meaning buyers and sellers can view current bid and ask prices. Lit pools offer full transparency and help traders assess market depth and short-term price trends.
• Dark Pools :
  Dark pools are private trading venues used mostly by large institutional investors. They operate outside public view , so order books and trade prices are not visible to the broader market. These platforms, also known as Alternative Trading Systems (ATS) , allow big players to trade large blocks of stock without affecting public prices.

What Influences Stock Prices?

A stock’s price is determined by supply and demand in the market. Several factors can influence this:

• The company's financial performance (like earnings reports)
• Economic conditions (such as interest rates and inflation)
• Investor sentiment and market psychology
• Geopolitical events or industry-specific news

When more people want to buy a stock than sell it, the price tends to rise. Conversely, if more people are selling, the price may fall.

How Can Investors Benefit from Stocks?

There are two primary ways investors make money through stocks:

1. Dividends :
   Some companies distribute a portion of their profits to shareholders in the form of dividends. These provide a steady income stream, especially for long-term investors.
2. Capital Gains :
   Investors can earn a profit by selling a stock at a higher price than what they originally paid. Over time, well-performing companies often reward investors with rising share prices.

Risks Involved

While stocks can be powerful tools for wealth-building, they come with risks. Share prices can drop due to poor company performance, economic downturns, or unexpected events. In the worst-case scenario, if a company goes bankrupt, shareholders may lose part or all of their investment.

That’s why diversification and careful research are key to managing risk when investing in the stock market.