What Is a Stock?
A stock (also called a share or equity) is a small ownership stake in a company. When a business needs to raise money to expand, it can sell these ownership units to the public. In return, buyers become shareholders — partial owners entitled to a slice of any profits the company distributes.
Paper trading note: In PaperTrade Academy you buy and sell simulated shares using virtual money. No real funds change hands.
Why Do Companies Issue Stock?
Companies issue stock through a process called an Initial Public Offering (IPO). The main reasons:
- Raise capital without taking on debt
- Fund growth — new factories, products, or acquisitions
- Provide liquidity for early investors and employees who hold options
Once shares are sold to the public, they trade on a stock exchange between investors — the company itself generally does not participate in day-to-day trading after the IPO.
How Stock Exchanges Work
Stock exchanges — like the New York Stock Exchange (NYSE) or NASDAQ — are regulated marketplaces where buyers and sellers submit orders. Modern exchanges use electronic order books to match:
- Bid price — the highest price a buyer is willing to pay
- Ask price — the lowest price a seller will accept
- Spread — the gap between bid and ask
A trade executes when a buyer's bid meets or exceeds a seller's ask.
What Moves Stock Prices?
Prices fluctuate based on supply and demand:
| Factor | Effect on price |
|---|---|
| Strong earnings report | Usually rises — more buyers |
| Disappointing guidance | Usually falls — more sellers |
| Market-wide fear (e.g., recession worry) | Often falls across the board |
| Interest rate cuts | Often rises — cheaper borrowing |
No single factor guarantees a price move. Markets reflect the collective expectations of millions of participants.
Key Takeaways
- A stock = a fractional ownership stake in a company
- Exchanges match buyers and sellers through order books
- Prices rise when demand outpaces supply, and fall when the reverse is true
- Paper trading lets you practice these concepts without real financial risk
Ready to test your knowledge? Take the quiz below.