Stocks are divided into two main types: common and preferred. Common stock usually gives shareholders voting rights, allowing them to influence company decisions, while preferred stock typically does not, but it provides fixed dividends and a higher claim on assets in the event of liquidation. When investors purchase stocks, they are essentially buying a piece of the company and hoping that the company’s performance will increase the stock’s value over time. Stock prices fluctuate based on various factors, including the company’s performance, market conditions, and investor sentiment, which can create opportunities for capital gains or losses.
Stock Example
For example, if an investor buys 50 shares of a technology company at $20 per share, their total investment is $1,000. If the company performs well and the stock price rises to $30 per share, the value of their investment increases to $1,500, resulting in a profit of $500 if they decide to sell. Conversely, if the stock price drops to $10 per share, the investment’s value decreases to $500, leading to a potential loss of $500 if sold at that price.