If you know what a stock is you’ll take a lot of confusion out of what you hear about the stock market, on financial channels, and in financial newspapers. You buy a stock because you want to make money, but how exactly does that happen? We’ll first define a corporation.

There are three types of business entities: sole proprietorship, partnership, and corporation. A corporation is run by a board of directories and is owned by many people called it’s shareholders. A corporation has to be incorporated in order to sell stock to shareholders.

Each one of the shareholders own a part of the company. They elect the board of directors who hire the officers that run the company. While shareholders don’t make decisions such as where to spend money and what to market, they do decide who will make those decisions.

In order to become a shareholder, you must buy a share of that company. This is called a share of stock. If you buy one share of stock of Apple, you have become an Apple shareholder. When you hear ’stock’ this is actually a general term which could mean one or more shares. You can buy one share of stock, or you can buy a thousand shares of stock. It is up to you.

Corporations issue shares of stock in order to raise money for the business. When they decide to sell stock, they are taking in a profit for the stock they sell. This money is called equity. This is why when you buy stock of a company you have equity in the company. For example, if a company has become incorporated and has decided to sell stock, they could issue 200,000 shares of stock, sell each share for $2, and raise $400,000 in equity. They can use this equity to build their business. If you were to buy some of this stock, you would become a shareholder.

Buying stock makes you money when you buy and sell it. You buy it at one price and sell it at a higher price. The value of the price goes up because of supply and demand. The more people buy a stock, the higher the price will go up to keep up with demand. If you buy a share of stock for $10, you have an initial value in that stock of $10.

When the demand for the stock goes up, the price goes up in order to discourage some buyers from purchasing to make sure there is still enough for those who do want to buy. If you see that the price of the stock you sold is up to $14, you can sell it for a $4 profit.

You can also make money through dividends of the company. A company pays dividends they have made a net income and want to pay their shareholders. If you buy 1,000 shares of a company that issues a quarterly dividend of 35 cents, you will be paid $350 a quarter or $1,400 for the year.