A stock (also known as equity) is an investment instrument that represents fractional ownership of a company. This entitles the owner of the stock to that fraction of the company’s assets and profits. Individual units of stock are called shares.

Stocks are bought and sold between individuals and institutions back and forth as they each predict whether the value of that fraction of the company will be worth more or less in the future. If you buy a stock when it is priced lowly and sell when it is higher, you collect the profits. These transactions have to conform to government regulations which are meant to protect investors from fraudulent practices. Historically, they have outperformed most other investments over the long run.

Companies issue (sell) stock shares to raise funds to operate their businesses. The holder of stock (a shareholder) has now bought a piece of the company and may have a claim to a fraction of its assets and profits. In other words, a shareholder is now an owner of the issuing company. The fraction of ownership is determined by the number of shares a person has relative to the number of total shares. For example, if a company has 1,000,000 shares of stock and you own 1,000 shares, then you would own and have claim to 0.1% of the company’s assets and earnings.