How do stocks work?
A stock, or share of equity, represents a unit of ownership in a corporation, entitling the holder to a claim on the company's assets and earnings in proportion to how many shares they hold, according to 
Investor.gov. Companies issue stock to raise money for purposes such as repaying debt, launching new products, expanding into new markets, or building facilities, and investors buy it hoping for capital appreciation, dividend income, or voting rights in company decisions. Once shares are issued, they trade among investors on regulated exchanges, with prices moving as buyers and sellers reassess a company's value. The system rests on federal disclosure and fair-dealing rules that Congress created after the 1929 market crash, enforced by the Securities and Exchange Commission. None of this is a guarantee of profit: stock prices can fall, and investors can lose money.
Ownership, not a loan
Buying a share of common stock makes the buyer a part-owner of the issuing company rather than a lender to it. Common stock generally carries voting rights on corporate matters and the right to receive dividends if the company's board declares them, while preferred stock typically does not carry voting rights but receives dividends before common shareholders and has priority over common stock if the company is liquidated, as explained by Investor.gov. Stocks fall into informal categories such as growth, income, value, blue-chip, large-cap, mid-cap, small-cap, microcap, and penny stocks, with penny stocks flagged as highly speculative. Because common shareholders sit last in line for any money left over if a company fails, they carry more risk than bondholders or preferred shareholders, a point Investor.gov's overview of investment risk makes directly.
Why companies sell shares and why prices move
A company sells stock to the public to raise capital it can use without taking on debt, and in exchange it accepts an ongoing obligation to disclose truthful information about its business and finances, a requirement rooted in the Securities Act of 1933 and the Securities Exchange Act of 1934 described on the SEC's role page. After that initial sale, existing shares change hands on secondary markets, where price reflects what buyers are currently willing to pay relative to what sellers will accept, shaped by the company's earnings, growth prospects, and broader economic conditions. Investors can research a public company's actual filings, including its financial statements, through the SEC's EDGAR database, rather than relying solely on news or rumor. Stock prices have historically trended upward over long periods but are far from steady in the short run, and large-company stocks have lost money in roughly one out of every three years on average, per Investor.gov.
Where the trading actually happens
Most stock trades execute on national securities exchanges registered with the SEC under the Securities Exchange Act of 1934, a list that currently includes the New York Stock Exchange, several Nasdaq markets, NYSE Arca, Cboe exchanges, MEMX, and others, as maintained on 
the SEC's list of national securities exchanges. These exchanges, along with the brokers and dealers who route orders to them, are legally required to treat investors fairly and honestly under the same 1930s-era laws, per Investor.gov. Ordinary investors typically don't trade directly on an exchange; they place orders through a brokerage account, a direct stock purchase plan offered by some companies, a dividend-reinvestment plan, or a stock mutual fund, each with its own fee structure, minimums, and trading schedule, detailed on Investor.gov's stocks FAQ. Discount brokers charge lower commissions but generally expect investors to make their own investment choices, while full-service brokers charge more in exchange for advice.
The rules that keep the system honest
The SEC's mission has three parts: protecting investors, keeping markets fair and orderly and efficient, and helping companies raise capital, as stated on Investor.gov. It enforces those rules through its Division of Enforcement, which investigates conduct such as material misrepresentations to investors, market manipulation, theft of customer funds, insider trading, and unregistered securities sales, and which can pursue civil penalties, injunctions, and industry bars, per the SEC's explanation of how investigations work. Investors can check whether a broker or investment adviser is properly licensed and review their disciplinary history through BrokerCheck or IAPD before opening an account. It's also worth knowing what federal protection doesn't cover: the Securities Investor Protection Corporation can replace missing securities and cash at a failed brokerage up to certain limits, but it does not protect against ordinary investment losses, and FDIC and NCUA deposit insurance don't cover securities or mutual funds at all, per Investor.gov's overview of investment risk.
Anyone considering buying stock for the first time can start by reviewing Investor.gov's introduction to stocks and searching a company's own filings on SEC EDGAR before deciding whether an investment fits their own financial situation.