Episode 03 · Beginner · 6 min read
What is a stock? What you own when you buy a share
A share is an equal piece of a company, bought from other investors on an exchange. What it gives you, and how often stock indices ended a year higher.
What do you own when you buy a stock?
A stock (or share) is a small, equal piece of a company: you own a part of it, with a claim on its profits and usually a vote. You buy it on a stock exchange, during its opening hours, from another investor, not from the company.
A company split into equal pieces
A company that wants money from the public lists on a stock exchange: it splits its ownership into a large number of equal pieces called shares, and sells some of them. Whoever holds a share owns that fraction of the company.
The company sold its shares once (when it listed). After that, investors trade them with each other.
After that first sale, the company is no longer part of the trades. When you buy a share, you buy it from another investor who wants to sell, through the exchange's order book.
What a share gives you
- A part of the profits, when the company decides to pay some out. These payments are called dividends. Many companies pay none and keep the money to grow.
- Usually a vote at the yearly meeting, often one vote per share.
- A claim on what is left if the company is sold or closes, after everyone it owes has been paid. Often that is nothing.
A share does not give you the company's cash, its products or a say in daily decisions. You own a small part of the business, and its value goes up and down with what other investors will pay for it.
Why the price moves
The price of a share is the last trade, like any price. It goes up when buyers want the share more than sellers do, usually because they expect bigger profits later. It goes down when they expect smaller ones. A share can lose most of its value, and when a company fails it can go to zero.
One stock or the whole market: indices
An index follows a basket of many shares at once. The S&P 500 follows about five hundred large US companies; when people say "the market is up", they usually mean an index like this one. Buying a fund that copies an index spreads your money across all of its companies.
How often does an index end the year higher? We measured every full calendar year in our data, from 2011 to 2021: the S&P 500 ended higher in 8 of 11 years. The table below shows the same count for every stock index we have.
These are past years of index prices (stocks only, no dividends), over one period. They say nothing certain about next year, and a single company can do much worse than an index.
Owning a share, or a contract on its price
You can also trade something that only follows a stock's or an index's price: a CFD with a broker, or a perpetual future on a crypto exchange (OKX lists some that follow US indices). With those you own a contract, not a piece of the company: no vote, no ownership, and often a cost to hold the position over time.
Flip the cards
Tap a card to flip it
Quick check
You buy one share of a listed company on an exchange. Who receives your money?
Questions people ask
Is a stock the same as a share?
In everyday use, yes. "Stocks" often means shares in general; "a share" is one piece of one company.
Do all stocks pay dividends?
No. Many companies, especially young ones, pay no dividend and keep their profits to grow.
Can a stock go to zero?
Yes. If the company fails, its shares can lose all their value. An index spreads that risk across many companies.
When can I buy and sell stocks?
When the stock exchange is open: set hours on working days, which differ by country. Some brokers offer trading outside these hours, usually with fewer buyers and sellers.
Do I own the company if I buy a CFD on its shares?
No. A CFD or a perpetual future only follows the price. You own the contract, not a piece of the company.
Next in Market Basics: forex, and why currencies always come in pairs. To see how we test ideas on stocks, forex and crypto, read our method.
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Education about how markets and tests work. Not financial advice.