The stock market lets buyers and sellers negotiate prices and make trades. ... Companies list shares of their stock on an exchange through a process called an initial public offering, or IPO. Investors purchase those shares, which allows the company to raise money to grow its business.
The stock market is where investors connect to buy and sell investments — most commonly, stocks, which are shares of ownership in a public company.
Definition: What is the stock market?
The term "stock market" often refers to one of the major stock market indexes, such as the Dow Jones Industrial Average or the Standard & Poor's 500.
When you purchase a public company's stock, you're purchasing a small piece of that company. Because it's hard to track every single company, the Dow and S&P indexes include a section of the stock market and their performance is viewed as representative of the entire market.
You’ll usually buy stocks online through the stock market, which anyone can access with a brokerage account, robo-advisor or employee retirement plan.
You don’t have to officially become an “investor” to invest in the stock market — for the most part, it’s open to anyone.
The stock market is regulated by the U.S. Securities and Exchange Commission, and the SEC’s mission is to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation."
You might see a news headline that says the stock market has moved lower, or that the stock market closed up or down for the day. Most often, this means stock market indexes have moved up or down, meaning the stocks within the index have either gained or lost value as a whole. Investors who buy and sell stocks hope to turn a profit through this movement in stock prices.
The concept behind how the stock market works is pretty simple. The stock market lets buyers and sellers negotiate prices and make trades.
The stock market works through a network of exchanges — you may have heard of the New York Stock Exchange or the Nasdaq. Companies list shares of their stock on an exchange through a process called an initial public offering, or IPO. Investors purchase those shares, which allows the company to raise money to grow its business. Investors can then buy and sell these stocks among themselves, and the exchange tracks the supply and demand of each listed stock.
That supply and demand help determine the price for each security, or the levels at which stock market participants — investors and traders — are willing to buy or sell.
Buyers offer a “bid,” or the highest amount they’re willing to pay, which is usually lower than the amount sellers “ask” for in exchange. This difference is called the bid-ask spread. For a trade to occur, a buyer needs to increase his price or a seller needs to decrease hers.
This all may sound complicated, but computer algorithms generally do most of price-setting calculations. When buying stock, you’ll see the bid, ask, and bid-ask spread on your broker's website, but in many cases, the difference will be pennies, and won’t be of much concern for beginner and long-term investors.
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