What is the Stock Market? How does it work?

Stock market explained.  Learn and understand the basics of Wall Street and the stock market for beginners.

What is the Stock Market?

The Stock market refers to a group of exchanges that allow stocks and other securities to be bought and sold. The stock market and Wall Street are two terms used in the United States to refer to all aspects of securities trading including stock exchanges that list shares of public companies, or stocks,  and other markets that trade securities.


People often refer to the performance of the stock market by referring to the thousands upon thousands of publicly traded companies that are listed on multiple stock exchanges. The stock market, more broadly speaking, can be understood to include a wide range of securities, including bonds, mutual funds, ETFs, and other securities.

One way to look at the stock market is as a network of stock exchanges, that allow investors and traders to buy and sell shares of publicly traded companies. Stock markets are public markets that allow for the issuing, buying and selling of stocks.

Through an initial public offering (IPO), private companies can list shares of their stock to an exchange. These shares are purchased by investors, which allows the company raise capital from the public and allow it to expand its business. The company becomes a public company once it is listed on a stock market. Investors can now buy or sell shares of the company on an exchange that tracks its stock price.

A functioning stock market is essential for economic development because it allows companies to access capital quickly from the public. The stock market has two important functions .  First, it allows companies to raise capital, or money, from the public. Second, it  gives investors the chance to invest and to own a portion of companies profits.

Although both the stock market and stock exchange are interchangeably used, a stock exchange is a actually component of a larger stock market. When one trades on the stock market, they are buying or selling shares on any of the stock exchanges that make up the overall stock market.  The New York Stock Exchange, or NYSE, and the Nasdaq are the two most important U.S. stock exchanges. The stock market in the United States is made up of these top exchanges and several others.

The New York Stock Exchange (NYSE) is an American stock market located in New York City’s Financial District. It is the largest stock exchange worldwide according to the market capitalization of its listed businesses. There are billions of trades occurring every day. NASDAQ (National Association of Securities Dealers Automated Quotations), an electronic marketplace based out of the United States, focuses on high-tech listings. It ranks second in terms of market capitalization, shares traded, after the New York Stock Exchange.

Stock market investors can purchase ownership stakes from companies to raise capital. These equity stakes are called shares of stock. Companies can list shares to be sold on the stock exchanges that make the stock market. This allows them to access the capital they need to expand and operate their businesses without taking on debt. Companies are required to provide information to shareholders and allow them to have a say in the management of their business.

Exchanging money for stock on the stock exchange is a great way to benefit investors. Investors may reap the potential rewards as stock shares may become more valuable, which leads to capital gains. As their profits increase, companies also pay dividends to shareholders.

Stock markets are important because they help companies raise capital to finance operations through the sale of shares of stock. Individual investors also benefit from it creating and maintaining wealth.




Information is for educational and informational purposes only and is not be interpreted as financial advice. This does not represent a recommendation to buy, sell, or hold any security. Please consult your financial advisor.


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