Stocks are a unit stake in a publicly traded company, which are available for sale on the stock market. Each company may have a different amount of stock available, and the amount of stock the company releases for sale to private investors will reduce the ownership of the company by a percentage. For example, a company may have 1,000 shares. Someone who invests in 10 shares would have a 1% stake in the company. However, in reality, a compnay will have many more shares than this, and it would be rare for a private investor to own as much as 1% of a company. Some companies only make available a certain percentage of the company in stock, therefore there is a limit to how much can be owned by investors.

You can buy either:

• New stock when a company first sells it to raise money to invest in its business.
• Existing stock that is traded on a stock market.

The price of stock can go up and down. The price of the stock is based on supply and demand, the more people who want stock, the higher the price; the fewer people who want stock, the lower the price goes. When a company is doing well, its stock price will go up as more people buy stock in the company, and therefore the value of your investment will increase. The value of stock is also affected by the overall level of confidence in the economy at home as well as the international economic climate.

There is a risk in losing your investment in stock, if confidence in the company is lost, or in extreme cases, if the company goes under. Investment in stock is carried out because as time goes by, the value of stock tends to increase, at least in the long term, and because publicly traded companies tend to pay a dividend, or share of their profits, to shareholders.

Capital Gain

As the price of your stock in a company go up, you will be in a position to sell your stock at a profit, therefore the investment has grown in value. This is known as capital gain, as your initial capital has gained in value. Any profits you make from capital gain will be subject to tax.

Dividends

Dividends are the means by which companies usually share their profits with their shareholders. A dividend is a share of the profits generated by the company during the previous period and set aside for dividend payments. The actual dividend paid per share will depend on the size of the total dividend and the number of shares in the company. Dividends are usually paid once or twice a year.