Stocks, which are referred to as shares and sometimes also referred to as equity, are a type of securities that represent the fractional ownership of a corporation (the company issuing shares). The shareholders of a company are entitled to a certain amount of the assets and benefits earned by that corporation; of course, the amount of these benefits and assets is related to the number of shares held by the shareholder. It means that the stockholder who owns more stocks, more benefits will be shared with him/her by the corporation, and vice versa.

Mostly, stocks are bought and sold in special stock exchanges like NASDAQ and New York Stock Exchange (NYSE), and these shares form the basis of the investment portfolio of investors and traders. Stock trading must comply with governmental regulations, as these laws protect your capital from fraudsters.

How are Shares Created and Offered?

Newly created companies and businesses, in order to attract capital to start their business, make their goals clear to investors and encourage them to invest in their business. In this way, investors are given securities representing the ownership of a part of the corporation or business, and these securities are called stocks or shares. Usually, this sale and supply of shares happens for the first time in the primary markets under the name "Initial Public Offering" or (IPO) and then they can be easily bought and sold in the secondary markets among traders.

Understanding Stocks and Corporations

To know more about stocks, let me clarify the concept of stocks with an example, if a company has 1,000 shares in general and you own 10 shares, you actually own 1% of the company's assets and income, and when the company earns, for example, one million Afghanis, You have the right to claim 1% of the income, which is equivalent to 10000 Afghanis.

Shareholders are not owners of a corporation but only share in the assets and incomes of the corporation. A corporation is actually a legal person that pays taxes like a human being, can own property or even can be sued. It should be noted that the corporate property is separate from the property of the shareholders and this limits the liabilities of both the company and the stockholders.

If a joint-stock company or corporation goes bankrupt, the judicial authority may sell all the assets of the company, but the assets of the shareholders are not at risk. The court cannot force the stockholders to sell their shares; however, with the bankruptcy of the company, its stock price may fall and the shareholders will suffer losses.

Types of Stocks

There are two main types of stocks in the world economy: Common stocks and preferred stocks.

Common stocks: Holders of common stocks usually have the right to vote in shareholders' meetings and can benefit from the dividends paid by the company.

Preferred stocks: Owners of preferred shares usually do not have the right to vote in such meetings, while these shareholders have more rights to the company's assets and income. For example, the owners of preferred shares receive the company's profits before the owners of common shares; and in case of bankruptcy of the company, the owners of preferred stocks have the priority.