The stock market is the system by which shares of publicly traded companies are bought and sold. People invest in stocks for a number of reasons, from growing their wealth over time to having a voice in how companies are run.
Companies raise money by selling stocks in an initial public offering, after which the shares are listed on a stock exchange like the New York Stock Exchange or Nasdaq. Share prices rise or fall according to supply and demand. As the value of a company’s stock increases, more investors are willing to buy its shares, driving the price up; as a company’s earnings suffer, the stock’s value declines and less buyers are ready to buy, pushing the price down.
Investors can trade directly with each other on the exchanges or via a network of over-the-counter markets. When buying or selling a stock, potential buyers and sellers offer a bid price and an ask price, respectively; brokers facilitate trades if the bid and ask match. Investors also have the option to use a “market” order, which means they’ll accept any offer for a share, but that approach is riskier, since the bid or ask can change right before your trade executes.
The biggest participants in the stock market include individual retail investors, mutual funds and exchange-traded funds. Financial institutions, such as banks and investment firms, are also major players. In addition, many people participate through robo-advisors, which automate investment for them.