What are stocks?

Stocks are also know as shares or equities. Stocks are basically certificates that represent ownership of a company. When you own a stock, you basically become one of many shareholder to a company. You lay claim to the assets of the company and future redistribution of the company’s profits in the form of dividends.

Although you are a shareholder, you do not have any say in the day to day running of the company. When you owns a stock, you entrust the management to increase shareholder value, either through profits or asset growth. There are some ways to influence the way the company it is run thru its Annual General Meeting. An individual shareholder might not have any influence at the vote but if enough shareholders feel the same way, a union of shareholders might be able to vote against motions by the board of directors.

Stocks around the world are listed in various stock exchanges. These stock exchanges act as the central marketplace where trades occur. For a normal shareholder, the only place where you can buy or sell your shares is through these stock exchanges. The two largest stock exchanges in the United States are the New York Stocks Exchange (NYSE) and the NASDAQ. Generally, a stock is only listed on one exchange. For example, Apple INC (AAPL) is listed on the NASDAQ. However, this is more or less transparent to you.

Since the NYSE or NASDAQ will never allow a normal shareholder to buy or sell shares directly, you can execute your trades through a broker. In general, you instruct your broker to carry out a particular trade and the broker’s job is to execute the trade at your defined price in exchange for a commission.

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