---
title: "Part 1: What Are Stocks? A Simple breakdown for new traders"
description: "This guide breaks down what stocks are, how they work, and key differences like common vs. preferred stock - clear, concise, and jargon-free for every level."
canonical: "https://traderinsight.pro/blog/part-1-what-are-stocks"
---

# Part 1: What Are Stocks? A Simple breakdown for new traders

This guide breaks down what stocks are, how they work, and key differences like common vs. preferred stock - clear, concise, and jargon-free for every level.

If you’re new to trading, you’ve probably heard terms like **stocks**, **futures**, and **options** thrown around.

But what do they actually mean?

And how are they different?

Here’s the breakdown - no jargon, no lectures - just the essentials.

Whether you’re brand new or just need things to finally make sense - this post has you.

## What is a Stock?

A **stock** (aka “common stock”) is a tiny piece of ownership in a company.

When you buy one, you're buying a *share* of the company.

If the company does well, your slice becomes more valuable. If it tanks? Same story - your share loses value.

> Imagine owning 1 share of a 100-share pizza. That’s your stock. If the whole pizza grows, your piece gets bigger too 🍕

## How Do Stocks Work?

When a company wants to raise money, it can “go public” - meaning it sells shares (aka stock) to investors through the stock market. You buy those shares, and you become a **shareholder**.

You’re not running the company, but you are a **part-owner**. In return, you can:

- Profit if the stock price goes up

- Get paid dividends (some companies share profits)

- Vote on certain company decisions (with common stock)

Most traders deal with **common stock**, but there are a few types.

## What Types of Stock Exist?

- **Common stock** – Most popular. You get voting rights and price movement.

- **Preferred stock** – No votes, but you get fixed dividends and first dibs if the company shuts down on the company’s remaining assets or liquidation value - like cash, inventory, or anything left after debts are paid.

- Typically held by institutions.

- Creditors and bondholders still get paid first, but **preferred stockholders come next**, ahead of common shareholders.

- **Class A, Class B, etc.** – Different classes can come with different voting rights (e.g. Google has GOOGL and GOOG).

> TL;DR: Most traders and investors use common stock 😉

## Types of Stock Trades

Different ways to trade based on time, risk, and capital:

- **Day trading** – In and out the same day. Fast-paced. High risk/reward. Often highly leveraged.

- **Swing trading** – Hold for a few days to weeks. Play short-term trends.

- **Position trading** – Hold for months. Based on big moves.

- **Long-term investing** – Hold for years. Think Warren Buffett-style.

- **Margin trading** – Borrow money to buy more stock (adds leverage/risk).

- **Cash accounts** – Trade only with what you have. No borrowing. No leverage.

## Example

You buy 10 shares of Apple at $150 = $1,500 total. If the price rises to $170, your position is worth $1,700 - you made $200. If it drops to $130? You’re down $200.

Pretty simple 😅

## Why Traders Like Stocks

- Easy to understand and get started

- Tons of liquidity and data available (on companies, ratings, trends, etc.)

- Good for short and long-term investing

- No expiration or special rules like options or futures

## ⚠️ Downsides

- Less built-in leverage (unless on margin)

- Can move slower compared to futures or options

- Big gains take time - or size - or really good timing 😎🔥