What Do Stocks Exist For?

For a professional stock trader or investor, the answer to the question why do stocks exist is really a no-brainer. However, for an individual who has never dealt with stocks before, this should be an interesting question to answer. As a reader of this article, let me assume that you are someone who is not really familiar with stocks yet and its purpose.

Stocks are the easy representation of a share in ownership for a company. It is easy really to understand what a stock is, based on that statement. Actually to further elaborate that, if you are an investor and you decide to buy stocks from a company, then you may now call yourself a part owner to it. And just how huge of a part do you own of that company? Well, that will depend on how big the share of stocks you actually purchased as an investor. Obviously, the bigger share of stocks you purchased, the larger percentage of shared ownership you acquire.

But why do stocks exist then?

Having a good understanding about stocks now, let us then discuss the main purpose of the existence of stocks. Again, for an absolute beginner about stocks, it can be quite interesting to find out, why would company owners be open to the idea of sharing the ownership of their company with other people, particularly its profits. Is it not a better idea to just keep everything to themselves so that they can make more money? Well read further and you'll get the answer.

Selfishness and greediness really have no room for growth. Actually this very well applies to doing business too. Business men choose to share the ownership of their companies because they want to expand they profits even further. Obviously, to grow the profits even more, bigger money is needed. And the way to find more money is by getting other people to invest in the business. But why would anybody just give his money away to some company out there? This question now leads us to the real purpose of stocks.

Any person who decides to lend his money to a company is actually sowing an investment to them. Meaning, as the company uses the money for the purpose of growing its business, profits get bigger. And as profits get bigger, those who made their investments are also entitled to these growing profits.

The exact representation of all these transactions between investors, a company, and growing profits is none other than "stocks". So there you go. Now you know why stocks are so important for companies.

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