Definition
A stock is a unit of ownership in a company, usually called a share, that gives its holder a residual claim on the company's profits and assets, ranking behind creditors. Listed stocks can be bought and sold on an exchange at a market-determined price.
How it works
A company issues stock to raise money without borrowing it, and each share represents a fractional ownership claim. Shareholders can gain from rising share prices and from dividends, and ordinary shares usually carry voting rights on major company decisions.
The price reflects what buyers and sellers collectively expect about the company's earnings, risks and interest rates, so it can move sharply on news. In Hong Kong, stocks trade in board lots whose size differs from stock to stock, so the minimum purchase is set stock by stock.
Illustrative example
Illustration with fictional figures: an investor buys 2,000 shares of Company A, which has 100 million shares in issue, at HK$15.00 each, paying HK$30,000 before fees and owning 0.002% of the company. If the shares later trade at HK$16.50 the holding is worth HK$33,000, a 10% gain. At HK$12.00 it is worth HK$24,000, a 20% loss.
What to watch for
Stock prices can fall sharply, and ordinary shareholders rank behind creditors if a company fails, so losses can be large or total. A low share price does not mean a stock is cheap; what matters is the price relative to the company's value.