Smart Investing 101 Part 2 (1)

How The Stock Market Works

What is a Stock?

People often talk about trading “stocks” or “shares” of companies but what does that actually mean? A stock is not a physical thing, so what is it that people are buying and selling?

It’s quite simple really, a stock or “share” (often used interchangeably) is a portion of a publicly traded company which can be bought or sold on platforms called Stock Exchanges (NASDAQ, NYSE, TSX…)

But why do they exist?

First, understand that not all companies have stocks which can be publicly traded. The ones that can’t are called Private Companies while the ones that can are called Public Companies

Whether a company is public or private, depends on a number of factors such as how well it has performed, how old it is, the company vision and goals etc. Just because a company is public does not mean it has been a successful business, in fact much of the time its just the opposite. Many companies attempt to go public to raise money for a risky new venture they are planning which could easily go south. This is why careful research and analysis is important when choosing which companies to invest in.