# What Is a Stock?

> A stock is a share of ownership in a company. Learn what owning a share gives you, why stock prices move, common vs preferred shares and how to trade them.

Source: https://learn.tradelabsai.com/markets/what-is-a-stock/  
Track: Markets and Instruments · Level: Beginner · Updated: 2026-10-03  
Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice.  
Cite as: TradeLabs Learn, "What Is a Stock?", https://learn.tradelabsai.com/markets/what-is-a-stock/

A stock is a share of ownership in a company. If a company has issued 100 million shares and you own 100 of them, you own one millionth of that business: a sliver of its buildings, products, cash, debts and future profits. A share and a stock mean the same thing in everyday use; "shares" usually refers to a specific number of them.

## Why companies sell shares

A company that needs money to grow has two main options. It can borrow, which means paying interest and repaying the loan (see [What Is a Bond?](https://learn.tradelabsai.com/markets/what-is-a-bond/)), or it can sell part of itself to investors in exchange for cash. Selling shares means the money never has to be paid back, but the founders give up part of the ownership and future profits.

The first time a company sells shares to the public is its [[ipos|initial public offering, or IPO]]. After that, the shares trade between investors on exchanges. When you buy a share of a large company on an app, you are almost always buying it from another investor, not from the company. The company only receives money when it issues new shares.

## What owning a share gives you

As a shareholder you typically get:

- **A claim on profits.** Profits can be paid out as [Dividends](https://learn.tradelabsai.com/fundamentals/dividends/) or kept in the business to grow it. Either way they belong to shareholders.
- **Voting rights.** Common shareholders usually vote on the board of directors and major decisions, often one vote per share.
- **Limited liability.** If the company fails, you can lose what you paid for the shares, but creditors cannot come after your other money.
- **The right to sell.** On an exchange you can sell your shares to another buyer whenever the market is open.

**Note: Common and preferred shares**
Most shares traded are **common stock**, with voting rights and a variable share of profits. **Preferred stock** usually has no vote but receives a fixed dividend first and gets paid before common shareholders if the company is wound down. Some companies also have several classes of common stock with different voting power.

## Why stock prices move

In the long run, a share is worth what the company will earn for its owners. In the short run, the price is set by supply and demand in the order book (see [Market Basics](https://learn.tradelabsai.com/markets/market-basics/)). The things that shift that balance include:

1. **Earnings and guidance.** Each quarter, public companies report revenue and profit. A result better or worse than expected can move a stock 5% to 20% in a day. See [Earnings Season Explained](https://learn.tradelabsai.com/fundamentals/earnings-season-explained/).
2. **Interest rates.** Higher rates make future profits worth less today and make safe bonds more attractive, which tends to weigh on stock prices, especially for fast growing companies.
3. **News.** New products, lawsuits, management changes, mergers and regulation.
4. **The whole market.** When fear spreads, most stocks fall together, good companies included.
5. **Flows.** Index funds buying a stock when it joins an index, or funds selling to meet redemptions.

## Measuring how big a company is

The share price alone tells you nothing about size. What matters is **market capitalization**: the share price multiplied by the number of shares.

**Example: Price is not size**
Company A trades at $500 a share with 20 million shares: a market cap of $10 billion. Company B trades at $25 a share with 2 billion shares: a market cap of $50 billion. Company B is five times larger even though its share price is twenty times smaller.

Investors often group companies by market cap: large caps (roughly $10 billion and up), mid caps and small caps. Small caps usually move more and trade with wider spreads.

## How you make or lose money

There are two ways to profit from owning a stock:

| Source | How it works | Example |
|---|---|---|
| Price gain | Sell for more than you paid | Buy at $40, sell at $52: $12 gain per share |
| Dividends | Receive part of the profits in cash | $0.50 per share each quarter: $2 a year |

Together these make the **total return**. Losses happen the same way in reverse: the price falls below what you paid, or the company cuts its dividend. A company can also go bankrupt, in which case common shares often become worthless.

Traders can also profit from falling prices through [Short Selling](https://learn.tradelabsai.com/markets/short-selling/), which means borrowing shares, selling them and buying them back later, hopefully cheaper. A short seller's possible loss has no ceiling, because a price can keep rising, so it belongs later in your learning.

## Stock prices, ticks and splits

US stocks are quoted in dollars and cents, and most move in steps of one cent, called the tick size (see [Ticks and Tick Size](https://learn.tradelabsai.com/markets/ticks-and-tick-size/)). When a share price gets very high, a company may do a [[stock-splits|stock split]]: a 4 for 1 split turns one $800 share into four $200 shares. Nothing about the company's value changes; the pie is just cut into more slices. Some brokers also let you buy **fractional shares**, so you can own $50 of a $500 stock.

## Buying a basket instead

Picking individual stocks means taking on the risk of single companies. An [[what-is-an-etf|exchange traded fund (ETF)]] holds many stocks in one share, often tracking an [[what-is-an-index|index]] such as the S&P 500. Many investors use ETFs for the core of a portfolio and trade individual stocks with a smaller part.

## Before you trade your first stock

- **Know the company.** What does it sell, does it make money and how much debt does it carry? [Valuation Basics](https://learn.tradelabsai.com/fundamentals/valuation-basics/) covers how to judge whether the price is reasonable.
- **Check liquidity.** Look at average daily volume and the spread. Thinly traded stocks can cost you on entry and exit.
- **Decide your exit first.** Know the price at which you are wrong and the size of the loss you accept. See [Position Sizing](https://learn.tradelabsai.com/risk/position-sizing/).
- **Watch the calendar.** Earnings dates can create overnight gaps that skip past your stop.

Next, see how stock trading works day to day in [Stock Trading](https://learn.tradelabsai.com/markets/stock-trading/), or learn the two prices every stock has in [Bid-Ask Spread](https://learn.tradelabsai.com/markets/bid-ask-spread/).

## Frequently asked questions

### What is the difference between a stock and a share?

In everyday use they mean the same thing. Stock usually refers to ownership in companies in general, and shares refers to a specific number of units, as in owning 50 shares of one company.

### Do all stocks pay dividends?

No. Many companies, especially young or fast growing ones, keep their profits to reinvest in the business. Others pay regular dividends. A company can also cut or stop its dividend at any time.

### Can a stock go to zero?

Yes. If a company goes bankrupt, its common shares often become worthless because lenders and other creditors are paid first. This is one reason investors spread their money across many companies.

### Is a higher stock price better?

Not by itself. A share price tells you nothing about a company's size or value without the number of shares. Market capitalization, the share price times the number of shares, is how size is compared.

## Sources

- U.S. Securities and Exchange Commission, [Stocks](https://www.investor.gov/introduction-investing/investing-basics/investment-products/stocks)
- FINRA, [Stocks](https://www.finra.org/investors/investing/investment-products/stocks)
- Wikipedia, [Stock](https://en.wikipedia.org/wiki/Stock)

## Continue learning

- Next lesson: [What Is a Bond?](https://learn.tradelabsai.com/markets/what-is-a-bond/)
- Previous lesson: [Market Basics](https://learn.tradelabsai.com/markets/market-basics/)
- Related: [Market Basics](https://learn.tradelabsai.com/markets/market-basics/): How financial markets work: exchanges, brokers, the order book, bids and asks, market makers and how millions of orders become one live price.
- Related: [Stock Trading](https://learn.tradelabsai.com/markets/stock-trading/): How stock trading works in practice: opening an account, choosing stocks, placing orders, managing risk and the costs to expect, with a worked first trade.
- Related: [Dividends](https://learn.tradelabsai.com/fundamentals/dividends/): Dividends are cash payments companies make to shareholders. Learn the key dates, types of dividends, dividend policy, taxes and their effect on prices and options.
- Related: [What Is an ETF?](https://learn.tradelabsai.com/markets/what-is-an-etf/): An ETF is a fund that trades on an exchange like a stock. Learn how ETFs track an index, how they differ from mutual funds, their costs and how to choose one.
- Related: [What Is an Index?](https://learn.tradelabsai.com/markets/what-is-an-index/): A market index tracks a group of assets with one number. Learn how indexes like the S&P 500 and Dow are built, weighting methods and how traders use them.
- Related: [Stock Splits](https://learn.tradelabsai.com/fundamentals/stock-splits/): A stock split increases share count and lowers price without changing company value. Learn how splits and reverse splits work, why they happen and the reaction.
- Related: [Valuation Basics](https://learn.tradelabsai.com/fundamentals/valuation-basics/): Valuation estimates what a business is worth. Learn intrinsic vs relative valuation, the main multiples, how growth and risk affect value and common mistakes.