What is a stock?

A stock is a financial asset that represents a fraction of the ownership of a company. When purchasing a company's stock, you own a small piece of this company called a share.

Owning stock gives you the right to vote in shareholders' meetings of the company (even though it exists non-voting shares) and receive dividends if the company chooses to distribute them. Those voting rights and dividends are proportional to the number of shares you own.

How to buy a stock?

Stocks can be sold or bought mainly on stock exchanges via brokers. When a company goes public through an initial public offering (IPO), their stock becomes available and can be bought on the exchange where they are listing.

Common Stock and Preferred Stock

Common stock is the most used type of stock that gives voting rights and is eligible for dividends.

Preferred stock is a different type of stock that can have a higher claim on assets and earnings.

Dilution and share buy-backs

When companies need to raise capital, they can choose to issue new shares to get additional cash. Stock owners are then diluted, and ownership and rights of these shareholders.

Companies can also choose to buy back stock, which benefits existing shareholders as their shares appreciate in value. With dividends, this is one of the way companies can give value back to shareholders.

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