The stock market is a place where people can trade shares of publicly-traded companies, known as equities. A share represents partial ownership of a company and entitles you to a slice of profits. It also enables you to vote on company issues, like electing directors to the board. The main function of the stock market is to match investors willing to buy a company’s shares at a given price with others ready to sell.
The New York Stock Exchange, Nasdaq, and other major stock exchanges act as “matchmakers” by allowing buyers and sellers to trade shares in an orderly fashion. Investors can also access the market via broker-dealers and online trading platforms. These intermediaries connect those looking to buy or sell a company’s stocks by offering two prices: the bid and the offer (or ask). If the bid is higher than the ask, the stock changes hands. If not, the order is not filled and no trade takes place. Prices are influenced by a number of factors, including fundamental and technical ones.
Many private companies choose to raise capital through a public offering, or IPO. They’ll hire an investment bank to help them conduct the sale, which involves selling a certain amount of their shares to investors. Once publicly traded, these firms must follow stringent reporting regulations and can be held accountable to their shareholders. The stock market serves a critical role in the economy, as it provides a channel for companies to raise funds and helps average Americans diversify their portfolios.