The stock market is the place where companies sell shares—a piece of ownership in their business—to investors. Investors then trade these shares on an exchange, such as the New York Stock Exchange or NASDAQ. The stock market provides a way for people to invest in companies, allowing them to help fund innovation like smartphones and lifesaving medications. The market also allows companies to raise money without borrowing, and it helps people save for retirement by building wealth over time.
Investors buy and sell stocks for a variety of reasons, such as income from dividends or having a voice in how companies are run. But it’s important to remember that the stock market is a global network of trading activities that are regulated by the federal government and various international bodies to ensure fair practices, protect investors, and promote confidence in the overall marketplace.
When you hear the media talk about the stock market’s performance, it’s likely that they are referring to an index like the Dow Jones Industrial Average or the S&P 500, which track the price movements of large and well-known companies. This is because these indexes are widely followed by both individuals and the media to gauge how well the market is performing.
A stock exchange is where potential buyers and sellers match up to facilitate a sale, though most trading happens electronically and isn’t on the floor as it once was. Generally, someone who wants to buy a stock will offer a price they’re willing to pay (the “bid”) and someone who has a stock they want to sell will provide an asking price. Intermediaries then match the two to complete a transaction.