How Stocks Work

In one line: A share is a small piece of a company that you own, and you can earn from it in two ways — the price going up, or the company sharing its profit.

🎯 What you'll learn

What a share (a small unit of ownership in a company) really means.
The two ways owners can make money: capital gains and dividends.
What market capitalisation (the total size of a company) tells you.
Why a share price moves up or down over time.
What an IPO (Initial Public Offering) is.

📘 Key concepts

A share = a slice of a company

A company is like a big pizza. It is cut into many equal slices. Each slice is a "share."

Share (also called a stock) — one small unit of ownership in a company.
If you own shares, you are a part-owner. You are called a "shareholder."
Example: a company has 1,00,000 shares in total. You buy 100 shares. You now own 0.1% of the whole company (100 ÷ 1,00,000).
Owning more shares means owning a bigger slice.

The two ways to earn

Think of buying a small shop with friends. You can gain in two ways.

Capital gain — the share price rises, and you sell for more than you paid. This is the main way most people earn.
Dividend — the company takes part of its profit and shares it with owners. Not every company pays a dividend. It is like the shop giving each owner a small cut of the year's earnings.

Market capitalisation

This is a quick way to measure how big a company is.

Market capitalisation (market cap) — share price × total number of shares.
Example: price ₹100 × 1,00,000 shares = ₹1,00,00,000 (1 crore). That is the company's total size in the market.
A bigger market cap usually means a bigger, more established company.

Why prices move

A price is set by buyers and sellers, like haggling in a bazaar. More buyers than sellers push the price up. More sellers push it down.

Profits / earnings — a company that earns more is worth more over time.
Growth — if people expect the company to get bigger, they pay more today.
News — good or bad news (new products, problems, rules) moves the price.
Demand — simply how many people want the shares right now.

Where new shares come from

IPO (Initial Public Offering) — the first time a private company sells its shares to the public.
Before the IPO, only a few owners hold shares. After it, anyone can buy them on the stock exchange (like the NSE or BSE in India).

🔍 Example

You buy 10 shares of a company at ₹100 each.

Buy:  10 shares × ₹100 = ₹1,000  (money you put in)
Sell: 10 shares × ₹120 = ₹1,200  (price went up)
Gain: ₹1,200 − ₹1,000 = ₹200     (capital gain)

You made ₹200 profit from the price rising.
Now add a dividend. The company pays ₹2 per share this year.
Dividend = 10 shares × ₹2 = ₹20 extra in your pocket.
But be honest: the price can also fall. If you sold at ₹80, you would get ₹800 and lose ₹200. Prices go both ways.

⚠️ Common mistakes

Thinking a share is just a number on a screen — it is real ownership in a real business.
Believing prices only go up. They fall too, and you can lose money.
Chasing a share only because its price is high or "famous." Price alone does not tell you if it is a good company.
Expecting every company to pay a dividend. Many do not, especially young, growing ones.
Confusing a low share price with a "cheap" company — market cap, not price, shows real size.

✅ Key takeaways

A share is one small unit of ownership in a company.
You can earn from capital gains (price rises) and dividends (shared profit).
Market cap = share price × number of shares = the company's total size.
Prices move on profits, growth, news, and demand.
An IPO is a company's first public sale of shares — and prices can fall, so risk is real.

📝 Quick check

Q: A company has 1,00,000 shares. You own 500. What percent of the company do you own? A: 500 ÷ 1,00,000 = 0.5%.
Q: Name the two ways a shareholder can make money. A: Capital gains (selling at a higher price) and dividends (a share of the company's profit).
Q: What does "IPO" mean? A: Initial Public Offering — the first time a private company sells shares to the public.

📖 New words

Share (stock) — one small unit of ownership in a company.
Shareholder — a person who owns shares in a company.
Capital gain — profit you make when you sell a share for more than you paid.
Dividend — part of a company's profit paid out to its owners.
Market capitalisation (market cap) — share price × total number of shares; the company's total size.
IPO (Initial Public Offering) — the first time a private company sells its shares to the public.

Educational content only — not financial advice. Trading involves the risk of losing money.