What is Stock (share)?
Aksiya
In short
A security representing a fractional ownership stake in a company. Shareholders participate in the company's profits and growth.
Also known as: share, equity, aksiya
A stock is a right to own a small slice of a company. If a company is divided into, say, 100 million shares, one share represents one hundred-millionth of it. A shareholder does not run the company, but participates in its profits and in the growth of its value.
How a stock makes you money
- Price appreciation. If the company grows and the market values it more highly, the share price rises. When you sell, the difference is your profit (or loss).
- Dividends. Some companies pay part of their profit to shareholders in cash.
A company's total market value is its market capitalisation: share price × number of shares. That is why a share price on its own does not tell you whether a stock is "expensive" or "cheap": both a $500 stock and a $5 stock can belong to a small or a large company.
Do not forget the risk
A stock gives no guaranteed return. If the company performs badly the price can fall for a long time, and in the worst case the company goes bankrupt and the shares become almost worthless. That is why investors spread money across many stocks rather than one (diversification).
A stock trades on an exchange under a ticker, and you buy it through a broker. A halal investor has one more question: do the company's business and financial ratios meet Shariah requirements — that is checked through Shariah screening.
Earnings grew 10% a year: value went from $40 to ~$104. Along the way the price both overheated to $112 and panicked down to $41, but each time it was pulled back towards the earnings line.
Example
Say the fictional "ABC Corp" has 10,000,000 shares and one share costs $50. You buy 100 shares:
- Money spent: 100 × $50 = $5,000.
- Your ownership stake: 100 ÷ 10,000,000 = 0.001%.
A year later the price is $60 and the company paid a $0.80 dividend per share:
- Position value: 100 × $60 = $6,000 → price gain of $1,000 (20%).
- Dividends: 100 × $0.80 = $80.
- Total return: $1,080, or 21.6% on $5,000.
If the price had fallen to $40 instead, the position would be worth $4,000 — a $1,000 (20%) loss. A stock can move either way.
Mistakes and tips
Do not pick a stock as "cheap" because of its price: a $3 stock can be riskier than a $300 one. Compare company value, profits and debt instead.
Do not put all your money into one company — even the best-looking business can hit an unexpected problem.
A stock and a CFD on that stock are not the same thing: with a stock you are a real owner, with a CFD you hold a contract with the broker.
Practising your first purchases on a demo account ($10,000 virtual balance) helps you understand order types before real money is involved.
Frequently asked questions
- If I buy a stock, do I own the company?
- Yes, but a very small piece of it. Common stock usually comes with voting and dividend rights, while running the company is in the hands of large holders and the board of directors.
- Why do stock prices change?
- The price is set where buyers and sellers agree. Earnings reports, interest rates, news and overall market mood shift supply and demand.
- Can I lose more than I invested in a stock?
- In a plain cash purchase the most you can lose is the amount invested. With margin or short selling, losses can exceed your own money.
Learn it in the Academy
This term is covered with hands-on examples and a quiz in these lessons of the interactive course.
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