Stocks are, in their prime definition, shares in the ownership and assets of a company. Although there are many types of stock, such as Preferred Stock, most often the term refers to so-called Common Stock or Common Shares that can be freely traded, usually at a Stock Exchange. Owners of common stock are shareholders in the issuing company, and therefore have voting rights.
Controlling a majority of a company’s stock gives that individual, group or organization the right to appoint the company’s managers and directors as well as to direct the company’s decision making. Many companies issue more shares of stock to the public than the 51% required for unchallenged ownership, assuming that no single entity will be able to buy up a majority of the outstanding stock - occasionally, they are proved wrong.
Companies do not issue stock in order to dilute their ownership; rather it is a method of raising capital known as Equity Financing. Historically, the issue and trade of stock have financed some of the world’s great economic undertakings. The powerful Dutch merchant fleet that dominated ocean trade in the 17th century was created by pooling public capital, as the cost of building and outfitting even a single ship was beyond the capacities of everyone but the wealthiest people or governments. It was the Dutch East India Company, in fact, that first issued shares of stock, though stock and bond trading had been conducted for many years previously. Stock Exchanges were established to provide a secure forum for the trading of stocks. The first American stock exchange was not the New York Stock Exchange (NYSE) as is commonly believed, but the Philadelphia Stock Exchange which was established in 1790, two years before Wall Street opened for trading.
Trading in stocks and bonds are the two most common types of equity trading, with stocks considered to be more risky than bonds. Stocks have traditionally been bought and sold through registered Stock Brokers, who typically charge a commission fee for arranging the trade. The advent of electronic stock trading online has opened up a whole new world of investing and trading possibilities for small and large investors. This, combined with the current “bullish” state of the stock market, has made trading in stocks more popular than ever before.
The dramatic rise in value of stocks issued by companies like Microsoft and Google has caught the public fancy, though sell offs like the legendary bursting of the late 1990s “Dot Com Bubble” serve to remind us that though stocks may BE securities, they can often cause Insecurity!
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