What is a stock?



Definition of a stock


A stock represents a fraction of ownership of a company. When you buy a stock, you buy part of your company’s ownership. The more stock you own the greater your ownership of the company. The stock or share represent part of everything from the company, it represents their earning, material, basically every assets and services under the name of that company.


Quick Definitions


Stock: An entity that represent a fraction of ownership of a company.


Market Cap: Total value of the company. The formula to calculate the market capitalization is the stock price multiplied by the number of shares outstanding.


Ticker Symbol: Symbol that represent a publicly traded stock. This is the symbol that can be used to search into stock brokerage. The ticker symbol can be used to quickly find information of a publicly traded company by using the ‘$’ dollar sign in front of it. Example $TSLA for Tesla.


Why would a company go public and let people buy their stock?


There are a few reasons why a company can decide to go public. The main reason is to raise capital for present and future projects. For example, a Company X needs 1B dollars to build a factory and run their business, but unfortunately, they do not have that capital. Company X has either the choice to find private investors or to go public and find investors through the market. In the case Company X goes public, anyone that wants to own part of Company X could buy their stocks. That money will be used for further expansions and as the value of Company X grows by making profits and expanding their businesses, their investors will profit equally with the share price rising accordingly. The opposite could also happen. If the company crumbles down, investors will lose their money.


There are other advantages to going public such as raising money at the moment they need or even use the stock as compensation for the employees. Public companies can raise money by selling stock or issuing more stocks.


How does the stock price move up and down?


To understand how the stock prices move, it is important to first understand the concept of stock exchange. As the name says it, stock is exchanged between buyers and seller every seconds.


If there is a greater buyer demands than sellers, than the stock price tends to go up.


If there is a greater seller demands than buyers than the stock price tends to go down.


This can be explained easily with the analogy of diamonds instead of stocks. We know that we have a finite number of diamonds on earth, now if suddenly everyone wants to buy a diamond and there is not much seller in the market. Seller will raise their prices and buyers will need to bid to get the diamonds from them. On the opposite side, if no one wants to own diamonds and they all suddenly decide to sell them, without any willing buyers, sellers will need to reduce their price until someone wants to buy the diamonds for that price.


The buy/sell demand is the core fundamental of price changes of a stock since they could be millions of stocks traded per seconds.