Stock Market Basics : What is a Stock ?

The best way to understand the stock market basics is to understand the basic definition of a stock. For the sake of understanding of the definition of a stock we will assume that you have a company by the name of JCK Inc. which sells greeting cards . Now this company you have launched a year ago and this company needs money to run the business . What you do for the money yu need is two things either you have money from the bank or ask for people who are interested in having a part wonership of the company.

As an enterpreneur you will sell some part of the compay and how will you do that is by selling shares of the company to these people. The shares of the company JCK in our case will be say 20 shares each to be given to five investors. So the total number of shares in the company are 100.

Now let us go onto the opposite side and say that you are one of the people who bought the shares of the company JCK. Let us assume you bought the shares at $10 each. Now after two years this company needs more money so this company will actually go to the public and say that are you willing to buy some of the shares of the company at a certain price. This price is determined by the sales and revenue and the future revenue of the company. Let us assume that in year two the company sold the shares to the public at $20.

In the world of stock market basics this is what the stock in reality is . These stocks are issued by the corporations and in the earlier ear you had the stock of the company in the form of the paper but in the computer age the brokerage houses actually hold these shares in an elecronic format.

As a shareholder of the company you are entitled to whatever the company's assets are . However in reality what happens is very different. If you are an investor then you need to undErstand that even though you are a shareholder for a tiny part of the company , you have no say in the day to day running of the company. You are simply buying stocks.The company is run by the shareholder who has the majority shareholding usually more than 51% and also the approval of the board of directors of the company for the fact is that it is the board that eventually selects the company management.

The stock market basics dictate the fact that all the shareholders come in the last for the fact of claiming the assets in the case of liquidaton of the company. This gives in to the fact that what is debt and who gives them and how does it differ from the equity of the company. In fact some companies issue preference shares which are different than the ordiantry shares.
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More on the debt vs Equity and the class of shares later and till then learn the stock market basics in an easy simple way here.