Stock Market
The stock market is not a place you can visit but refers to the trading (some physical, most online) of shares representing the partial owning of companies. It’s not only where businesses raise capital but is used as a sign of the economy’s health.
KEY TAKEAWAYS
- The stock market refers to the collective trading network involving stocks and their derivatives.
- The original crowdsourcing, the stock market, is a central part of modern economies since it’s where companies raise vast sums of money to start a business, expand, or pay off debt.
- Companies listed on stock exchanges must be public, meaning their shares are open not just to a select few but traded on stock exchanges and elsewhere. Public companies are subject to many reporting and transparency regulations.
- Stocks are sold to institutional investors and high-net-worth individuals, but also those with far more modest means looking for income from a share of the profits, to sell the stock later at a higher price, or simply to have a say in how a company is run.
- The Securities and Exchange Commission (SEC) and individual state regulators oversee the U.S. stock market.12
The price of stocks changes based on supply and demand, the company’s performance, economic conditions, and other factors that might not seem rational—like investor “sentiment”—but all of which must be considered if you’re buying or selling shares.
People purchase stocks for a lot of reasons. Some hold onto stocks, looking for income from dividends. Others might think a stock will rise, so they snap it up, trying to buy low and sell high. Still, others might be interested in having a say in how particular companies are run. That’s because you can vote at shareholder meetings based on the number of shares you own.
Both “stock market” and “stock exchange” are often used interchangeably, but they’re not the same. Traders in the stock market buy or sell shares on one or more stock exchanges, which are only part of the overall stock market. The major U.S. stock exchanges include the New York Stock Exchange (NYSE) and Nasdaq.
How Does the Stock Market Work?
The stock market is a vast, complex network of trading activities where shares of companies are bought and sold, protected by laws against fraud and other unfair trading practices. It plays a crucial role in modern economies by enabling money to move between investors and companies.
Sometimes the best way to see how something works is to look at its parts. In that light, let’s review the major elements of the stock market, from the companies selling shares to stocks to exchanges to the indexes that give us a snapshot of the stock market’s health