The stock market is the place where shares of public companies are bought and sold. A company’s stocks can rise or fall in value, depending on how much demand there is for them and how profitable they are expected to be in the future. Investors hope to make money by buying stocks that are expected to rise in value, or selling their shares at a higher price than they bought them for. Typically, when you hear in the news that the “stock market is up” or down, it’s referring to a broad group of stocks such as the Dow Jones Industrial Average or the S&P 500. These are large groups of stocks that represent a wide range of industries and companies.
Stock prices are constantly rising and falling, based on supply and demand. Investors and traders are continually negotiating new prices with each other, changing them as they receive more or less information about a company. This process is called “price discovery.”
A company issues stock to raise money and allow investors a chance to gain profits from the growth of the business, as well as any dividends (a given amount of money per share at regular intervals) or appreciation in the price of the shares. A successful business is usually rewarded with rising stock prices, while a failing company may see its stock prices drop.
Individuals can purchase stocks by opening a brokerage account with a broker, or working with an investment advisor. These brokers will then buy and sell on your behalf on a trading exchange, such as the New York Stock Exchange or Nasdaq. These exchanges bring together people looking to buy a specific stock with those who are willing to sell it, and they facilitate the transactions at lightning speed.