Think of a company as a giant pizza. Buying a stock, also known as a share, is like buying a single slice of that pizza. You don't own the whole thing, but you do own a piece of it. The more shares you buy, the more slices you own.

When you own stock, you're called a shareholder or stockholder. This ownership gives you a claim to a portion of the company's profits and a right to vote on certain company matters. In the past, this ownership was represented by a physical paper document.

Companies sell shares to raise money, also known as capital. This is a way for them to get cash to grow the business without having to take out a loan from a bank.

A company might use this money to:

• Develop new products
• Expand into new markets
• Build new factories
• Pay off debt

For investors, buying stock is an opportunity to own a piece of a growing company. If the company does well and its value increases, the value of their shares increases too.

Not all stocks are created equal. The two most common types are common stock and preferred stock. They offer different rights and benefits to shareholders.

Most investors own common stock. This type gives you voting rights. You get a say in major corporate decisions, like electing the board of directors who oversee the company's management. The number of votes you have typically corresponds to the number of shares you own.

Preferred stock is different. It usually doesn't come with voting rights, so you don't get a say in how the company is run. In exchange for giving up that power, you get priority treatment in other areas. For example, preferred shareholders are guaranteed to receive their dividend payments before common shareholders get anything. If a company faces financial trouble and has to sell its assets, preferred shareholders get paid back before common shareholders.

When a company makes a profit, it has a choice. It can reinvest that money back into the business to fuel more growth, or it can distribute a portion of the profits to its shareholders. This distribution is called a dividend.

Dividends are usually paid in cash, on a per-share basis. If a company declares a dividend of $1 per share and you own 100 shares, you'll receive $100. Not all companies pay dividends. Younger, fast-growing companies often prefer to reinvest all their profits to expand as quickly as possible. More established, stable companies are more likely to pay regular dividends, making their stock attractive to investors looking for a steady income stream.

Now that you understand what stocks are and why they exist, let's test your knowledge.

Understanding these core concepts is the first step. You now have the foundation for exploring how stocks are bought and sold, and how they fit into a larger investment strategy.