Explanation of How Stock Shares Work

by Tim Plaehn Google

The stock market and investing in shares of stock is a major avenue of investment. The stock market is an important sector of the economy and a large proportion of the population has some exposure to stocks through mutual funds, retirement plans or stock ownership. Stock investing can be for long-term growth of assets or short-term trading for quick profits.


A share of stock is a piece of ownership in the issuing corporation. Corporations are owned by the stock holders, and public companies have their stock traded on the stock exchanges where investors can buy and sell the shares. Shareholders have the right to vote for the corporation's board of directors and on corporate resolutions.


Shares of publicly traded companies trade primarily on organized stock markets. The stock exchanges promote a flow of orders between buyers and sellers of stock. Stock prices are a result of supply and demand forces. The price of a stock is a balance of what buyers want to pay and sellers want to receive.


The connection between the investor and the stock market is the stock brokerage firm. The securities industry is highly regulated and stock brokers are licensed and registered with the Securities and Exchange Commission. The stock broker acts as the investors agent to buy or sell shares of stock. The stock broker earns commissions for filling buy and sell orders for the customers.


As owners in shares of a company, stock investors participate in the profits of the company through dividends paid on the stock and the value the stock market places on the company. Share prices move up and down with the projections of the company's future financial results and the overall mood of the stock market. Buyers of stock shares expect the value or price of the shares to rise, in the short-term or over a longer investment period.


The stock market and owning shares of stock is one avenue to become wealthy. Long-term investors and short-term traders can make significant money in the markets. Shares of stock also involve risk and there is possibility of losses. Stock investing can be accomplished by buying individual stocks, exchange traded funds or stock mutual funds.

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