A stock market is a marketplace that brings together people who want to sell shares of companies they own with people who want to buy them. By investing in stocks, you can potentially earn returns in two ways: a dividend or capital appreciation.
The market is made up of a network of buyers and sellers, organized by regulated exchanges. These can be physical, like the New York Stock Exchange on Wall Street, or electronic, like the Nasdaq. They all have rules to promote fair practices and protect investors. A key role of the stock market is to help companies raise money, also known as capital, for growth and expansion.
When a company first makes its shares public, or goes public, it’s called an initial public offering (IPO). After the IPO, the company’s shares can be bought and sold on the secondary market. The price of a company’s shares can rise or fall depending on a number of factors, including the strength of the economy, the company’s profits and sales, and its overall business performance.
Investors buy and sell shares in the hope that they’ll go up over time. This can be a great way to grow your wealth over the long term, which may help fend off inflation that erodes the value of your dollar’s buying power or allow you to reach financial goals you would need to save for with other investments, such as real estate. In addition to the primary and secondary markets, there are other options for investing in stocks, such as through mutual funds or exchange-traded funds (ETFs). Investors can also use short selling, margin buying, and derivatives to control large blocks of stock with a smaller investment than an outright purchase or sale.