The stock market is a place where individuals can buy and sell fractional ownership of publicly traded companies. The share prices of those companies fluctuate, and people invest in them because they hope that those shares will grow in value.
Unlike other investments, the value of a company’s shares is largely determined by supply and demand. That means that for there to be a stock trade, both a buyer and seller have to agree to the price at which they’re willing to sell or buy. The supply and demand on the market helps shape prices, as do news and opinions that affect investor confidence in a particular business.
Stocks are traded on multiple exchanges, the largest being the New York Stock Exchange (NYSE) and Nasdaq. You’ll hear business reports mention the Dow Jones Industrial Average or the S&P 500, which are indexes that track stocks from a number of large U.S. companies.
While some investors hold on to their shares for the income from dividends, others buy and sell to gain a better return on their money. The stock market also provides a way for many companies to raise capital, often without borrowing, by selling their shares in an initial public offering.
There are risks in investing, but it’s a way to make your money work for you rather than just sitting in a savings account. Plus, a healthy market can help fund technological advances like smart watches and more effective medications.