Stock Market Basics

A stock — also called a share or equity — represents partial ownership of a company. If a company has issued one million shares and you own ten thousand of them, you own one percent of the business. That ownership is real: you share in the company's success through a rising share price and, for many established companies, through dividends paid out of profits.

Companies sell shares to raise money. Instead of borrowing from a bank, a business can sell ownership stakes to the public through an initial public offering (IPO), then those shares trade freely between investors on an exchange like the TSX. The company gets capital to grow; investors get a claim on the company's future.

Why do share prices move? Because owning a piece of a business is worth more when the business is expected to earn more. Every day, millions of investors form opinions about a company's prospects — its sales, its costs, its competition, the broader economy — and act on them. When more money wants to buy than sell, the price rises; when more wants to sell, it falls.

It's important to separate two things: the price of a stock and the value of the underlying business. Over short periods, prices swing on sentiment and headlines. Over long periods, prices tend to follow the actual earnings and cash flow a business produces. Disciplined investing is largely about telling those two apart.

Owning shares also carries risk. If a company struggles, its share price can fall — sometimes to zero if it fails entirely. Unlike a bond, a stock makes no promise to pay you back. That risk is the price of the higher long-run returns equities have historically delivered.

When you decide to buy or sell, you tell your broker how using an order type. The three you'll meet first are market, limit, and stop orders.

A market order says: buy (or sell) right now, at whatever the best available price is. It fills almost instantly, which is its advantage. The trade-off is that you don't control the exact price — in a fast-moving or thinly traded stock, the price you get can differ from the one you saw a moment earlier.

A limit order says: buy at or below a price I set, or sell at or above it — and not otherwise. A buy limit at $20 will only fill at $20 or less. You control the price, but you give up certainty: if the stock never reaches your limit, the order simply doesn't execute. Limit orders are the careful investor's default, especially for less liquid TSX Venture names where spreads are wide.

A stop order is a trigger. A sell stop at $18 sits dormant until the stock trades at $18, at which point it becomes a live market order to sell. Investors use stops to cap a potential loss without watching the screen all day. A variant, the stop-limit, turns into a limit order instead of a market order when triggered — adding price control at the cost of the same fill-or-not uncertainty.

Choosing among them is about your priority on a given trade: speed and certainty of execution (market), control of price (limit), or automatic protection (stop).