Page 13 - eBook

LESSON 5

STOCKS & INDEX FUNDS

Let's start by learning the basic terminology:

What is a stock?: A piece of paper that says you are a frac�onal owner of a

company that is publicly traded.

What is a Share?: A por�on/piece of a stock/company.

What does publicly traded mean?: Anyone can buy and sell these shares to

each other.

Why does a private company become a public company?: So they can
expand their business.

Example: Let's say you are a start-up company and you need money, so you
borrow from friends to start your new business. A few years later you become

successful and are very popular, but you want to grow your company and
become the best in America. But you have a problem! You need to borrow more
money, but no one has that much money to give you. You go to an "EXCHANGE"

ie The Toronto Stock Exchange, and you become a public company and you sell
shares of your company to the public that you used to expand your business.

When you buy stocks, you don't buy them from the company; you buy stocks
from other people that already have them. And you sell stocks to someone who
wants to buy them from you. This means some�mes someone is winning and

someone is losing.

How does a private company become a public company? They do an “Ini�al
Public Offering” or “IPO”. This is the process by which a private company
becomes a public company on an exchange.

Sankeethan Ratneswaran – 2021 Copyright 13