Stock market basics · updated October 21, 2026
What is a stock and how does it work
A stock, or share, is a small piece of a company: whoever buys it becomes a part-owner, with a slice of the profit and of the votes. Its price goes up and down on the exchange depending on how well investors expect the business to do.
How it works
A company splits its capital into equal shares. Each share gives you a slice of the profit the company pays out (dividends), a vote at the shareholders' meeting and a slice of the company's value if it is ever sold. You make money if the price rises or if the company pays dividends. You lose money if the price falls; at worst you lose what you put in, never more.
Worked example
A company has 1,000,000 shares. You buy 100 of them.
If the company pays out $5 million of profit as dividends, that is $5 per share, so you get $500 before tax.
Worth knowing
Over the long run, stocks have earned more than savings accounts and bonds, but with big drops along the way. That is why they suit money you will not need for several years.
When a stock can fool you
A single company: a company can go bankrupt and its stock can go to zero. Today's price does not tell you whether a stock is expensive: for that you compare the price with the profit (P/E).
Related terms
Learn it in the Academy
Questions about a stock
What do you get when you buy a stock?
A piece of the company: the right to dividends if the company pays them, a vote at the shareholders' meeting, and the gain or loss from changes in the price.
Can you lose more than you invested in a stock?
No, not if you buy it with your own money. The worst case is that the stock goes to zero. Bigger losses only happen with leverage or short selling.
How much money do you need to buy stocks?
The price of a single share, and with brokers that offer fractional shares, just a few dollars.
These explanations are for information only. They are not a recommendation to buy or sell.
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