The Basics of Shares of Stocks

A share is a type of financial security which shows the holder’s proportionate share in the issuing company. Corporations generally issue (sell) shares to finance the acquisition of assets used to carry on the business. There are basically two categories of share: preferred and common. Preferred stocks are usually purchased and sold mainly on commercial stock exchanges, while there may also be private sales, and they form the basis of most portfolios. Common stocks are often listed on several exchanges, although there are some blue chip stocks which are listed exclusively on the Nasdaq.

When an investor buys shares, they own a tiny fraction of the whole ownership of the corporation. To profit, they divide the ownership percentage between themselves and the corporation, with each shareholder receiving a portion of the corporation’s profits. The profit percentage is determined by the corporation, its assets and liabilities, and the price of its stock. This allows the investor to reap a percentage of the corporation’s profits even when the corporation does not perform well or makes no profit at all.

However, shares of corporations usually do not trade on major exchanges, because they are usually of little value compared to other forms of equity. They are traded on secondary exchanges. Unlike stocks on major exchanges, shares of these companies do not require the purchase of securities. Instead, owners sell their shares directly to other shareholders. This allows them to retain their ownership and control of the assets, avoiding the risks of trading on major exchanges.