What Are Stocks and How to Make Money on Them

Let’s take a closer look at what stocks are, what rights they give to investors, and how shareholders can earn income from them.

What Is a Stock?

A stock is a security issued by a joint-stock company, also known as the issuing company or the issuer. All investors who buy its shares become co-owners of that company. Each stock represents a portion of ownership — even if it’s a very small one.

What Do Stocks Look Like?

Today, stocks exist only in electronic form — as digital records in the accounts of their owners. These accounts are managed by special financial institutions called depositories and registrars, which keep track of the securities and ownership changes.

What Rights Do Stocks Give Their Owners?

Even if you own just a small portion of the company, you still become a shareholder and gain certain rights, such as:

• voting at shareholder meetings and participating in company management (if the stock is voting);
• receiving dividends — a portion of the company’s profit (if dividends are distributed);
• claiming a share of the company’s assets in the event of liquidation.

Voting rights are important because all major company decisions are made collectively at shareholder meetings — including decisions about liquidation, restructuring, or profit distribution. The shareholders decide whether to reinvest profits into the business or pay part of them out as dividends.

However, most investors buy stocks not to participate in company management, but to make money from them.

How to Earn Money from Stocks?

There are two main ways to earn income from stocks: through dividends and through capital gains — the increase in stock value over time.

Dividend Income

If the company earns a profit during the year and the shareholders decide to distribute part of it, you’ll receive dividends on your shares. The amount depends on how much profit the company made and how many shares you own.

Income from Selling Stocks

You can also make money by selling your stocks at a higher price than you bought them for. For example, if the company grows and its shares become more valuable, the price difference between purchase and sale becomes your profit.

Both types of income can work together. You might receive dividends for several years and later sell your stocks at a profit. However, there are no guarantees. If the company operates at a loss or decides to reinvest profits, dividends might not be paid. Likewise, if stock prices fall, selling them could lead to losses instead of gains.

That’s why it’s important to remember the relationship between risk and return. Stocks can potentially bring higher profits than bank deposits, but you should only invest the amount you can afford to lose.

Types of Stocks

Companies issue two main types of stocks: common and preferred. The main differences are in voting rights and dividend guarantees.

Common Stocks

The most common type of shares. They always grant voting rights at shareholder meetings but do not guarantee dividend payments — the decision depends on the company’s financial results and shareholder approval.

Preferred Stocks

These usually come with a fixed dividend rate, often expressed as a percentage of the company’s net profit divided among all preferred shares. Owners of preferred stocks generally have no voting rights unless the company fails to pay dividends for the previous year.

Special Types of Preferred Stocks

• Non-voting preferred stocks. These guarantee a fixed dividend — a set amount or percentage of the share’s nominal value — and are paid first among all shareholders. Voting rights apply only in cases such as company liquidation.
• Preferred stocks with special rights. The company’s charter defines their unique privileges — for instance, the ability to vote, priority dividend payouts, or the right to buy new share issues first. Other shareholder rights may also be specified in the charter.

The type of stock you own determines whether you receive dividends, how large they are, and in what order they’re paid. Understanding these distinctions is key to making informed investment decisions and building a balanced portfolio.