How do stocks work? That seems like a question that one should know before investing. We’ll do our best to give you expert-level knowledge of the ins and outs of how stocks work and why they matter.
A stock represents a means for companies to raise capital outside of a regular revenue stream. When companies sell shares of stock, they sell a small piece of ownership to investors.
Companies start as privately held and are not listed on any stock exchange. Its leaders must decide to start selling shares through an initial public offering (IPO). The process typically takes about six months.
In a sense, shares of stock are priced based on supply and demand. Generally speaking, as a company’s profits increase, so will share prices.
There are a few basic ways to make money in stocks. You can make the stock market work for you, buy and sell for quick capital gains, or grab stocks that pay dividends.
Stock dividends represent an amount of cash per share. Companies typically pay dividends quarterly.