What is a stock? A share is a slice of a company

A company’s ownership is divided into shares. Hypothetical: if a company were cut into 100 shares, one share would be 1% of it, like the green square in the grid below. Real listed companies issue millions or billions of shares, so a typical investor owns a tiny fraction, but the idea is the same.

One share can give you a slice of the profits when the company pays them out as dividends, a vote at shareholder meetings, and a price that rises or falls with the business and the market. Not every company pays dividends, and a price can fall a long way, even to zero if the company fails. Multiply the share price by the number of shares and you get the company’s value on the market, its market capitalization.

Turn your phone sideways to read the drawing. Tap to close.

A hand-drawn 10 × 10 grid standing for a hypothetical company cut into 100 shares, with one green square and the label your 1 share = 1% of the company (1 / 100 = 1%). Beside it, what a share gives you: a slice of the profits (dividends, if paid), a vote at shareholder meetings, and a price that can rise or fall. A note adds that real companies issue millions of shares.

Why do companies list on the stock market?

A company sells shares to the public to raise money for growth without borrowing it, and to give founders, employees and early investors a way to sell. That first sale is the initial public offering; what is an IPO covers how it works and why first-day prices can swing.

After the IPO, the shares trade between investors. When you buy a share on the market, your money normally goes to another investor, not to the company. In return for its listing, a company publishes regular financial reports, which is what makes researching it possible.

Exchanges and brokers: how you actually buy a share

An exchange is the marketplace where orders meet. In the US the best known are the NYSE and Nasdaq; NYSE vs Nasdaq explains the difference and why it barely matters to you. You can’t send an order to an exchange yourself: you need a broker, a licensed firm that holds your account, takes your order and routes it to the market.

From Saudi Arabia or the Gulf, that means an account with a regulated broker that offers US stocks; how to buy US stocks walks through it step by step. US trades happen in the regular session, from late afternoon to around midnight on Gulf clocks: see US stock market hours. Saudi shares trade on Tadawul on their own schedule, covered in Saudi stock market hours.

How is a stock price set? Bids, asks and the order book

Nobody sets the price. Buyers post bids, the price they are willing to pay; sellers post asks, the price they will accept. These waiting orders form the order book, drawn below with hypothetical prices: buyers on the left in green, sellers on the right in red, and a one-cent gap between the best bid ($50.00) and the best ask ($50.01). That gap is the bid-ask spread.

A trade prints when someone accepts the other side’s price. A market buy takes the best ask; if it wants more than the 200 shares offered at $50.01, the rest fills at $50.02 and the last price ticks up. When buyers keep taking offers, the price climbs; when sellers keep hitting bids, it falls. Your order type decides whether you control the price or the speed: see order types.

Behind the orders are views about the business, news, interest rates and the mood of the whole market. A long stretch of rising prices is a bull market and a sustained fall a bear market; bull vs bear market explains both.

Turn your phone sideways to read the drawing. Tap to close.

A hand-drawn order book: a price column from 50.04 down to 49.97, with sellers’ asks in red above (bars of 600, 400, 300 and 200 shares growing to the right) and buyers’ bids in green below (500, 300, 600 and 400 shares growing to the left). A dashed line marks the 0.01 spread between 50.01 and 50.00; notes say a market buy takes the best ask and a market sell takes the best bid, and that when a price level runs out, the next trade prints at the next price.

Investing vs trading: two ways to use the same market

The difference is mostly time, as the timeline below shows. Investors buy businesses or funds and hold for months or years, letting earnings and time do the work and spreading money across many holdings. Traders hold for minutes to weeks and try to profit from price moves, with a planned exit and a stop on every position.

Neither is easy money. Investing means sitting through drops that can last years; trading means competing with professionals, paying costs on every trade and losing on many of them. Many beginners start with diversified funds and learn stock market indexes first, and only trade actively, if at all, after studying day trading for beginners and practising with small size.

Turn your phone sideways to read the drawing. Tap to close.

A hand-drawn timeline of how long you hold a position, from minutes through hours, days, weeks and months to years. Above it, highlighted bands for scalping, day trading and swing trading on the short end and a green band for investing on the long end. Below, two notes: trading, timing and a stop on every trade; investing, the business, time and diversification.

Stock market risks, and where to start

Stocks can fall sharply and stay down for years, single companies can go bankrupt, and borrowed money can turn a drop into a loss larger than you planned. US stocks also bring currency and tax questions for Gulf investors. Invest only money you will not need soon, spread it across companies and sectors, and decide in advance how much you can afford to lose; risk management sets out the rules. A sensible path through this section:

  1. Open an account: how to buy US stocks from Saudi Arabia and the Gulf, including the W-8BEN form.
  2. Learn the market’s scoreboards and the simplest way to own many stocks at once: what is an ETF.
  3. Size up a company: market cap, how dividends work and stock splits.
  4. See how the market groups and cycles: stock market sectors and bull vs bear markets.
  5. Understand borrowed money before you ever use it: margin trading.