If the concept of investing in the stock market scares you, you are now not alone. Individuals with very limited experience in stock investing are either terrified by horror tales of the common investor losing 50% of their portfolio value—for example, in the two bear markets that have already happened in this millennium.

—or are beguiled by “hot tips” that bear the promise of big rewards however seldom pay off. It is no longer surprising, then, that the pendulum of investment sentiment is said to swing between concern and greed.

The reality is that investing in the stock market includes risk, however when approached in a disciplined manner, it is one of the most efficient approaches to build up one’s net worth. While the value of one’s home typically accounts for most of the net worth of the average individual, most of the affluent and very wealthy commonly have the majority of their wealth invested in stocks. In order to recognize the mechanics of the stock market, let’s commence by delving into the definition of a stock and its different types.
Key Takeaways

Stocks, or shares of a company, symbolize ownership equity in the firm, which provide shareholders voting rights as well as a residual claim on corporate profits in the structure of capital gains and dividends.
Stock markets are the place individual and institutional investors come collectively to purchase and sell shares in a public venue. Nowadays these exchanges exist as electronic marketplaces.
Share prices are set by means of supply and demand in the market as buyers and sellers place orders. Order flow and bid-ask spreads are frequently maintained by specialists or market makers to ensure an orderly and truthful market.

Definition of ‘Stock’

A stock or share (also recognized as a company’s “equity”) is a monetary instrument that represents ownership in a company or corporation and represents a proportionate claim on its assets (what it owns) and profits (what it generates in profits).4

Stock ownership implies that the shareholder owns a slice of the company equal to the number of shares held as a proportion of the company’s total outstanding shares. For instance, an person or entity that owns 100,000 shares of a company with one million outstanding shares would have a 10% ownership stake in it. Most companies have outstanding shares that run into the tens of millions or billions.