A stock market is a place for anyone to buy and sell fractional ownership of public companies. It plays an important role in modern economies by distributing money between investors and allowing people to make investments that can potentially offer higher rates of return than other financial instruments. The value of stocks can rise and fall based on a variety of factors, including the company’s profitability, the economic climate, and investor expectations about future performance.
Most shares of publicly-held companies are bought and sold through a stock exchange, such as the New York Stock Exchange or Nasdaq. When a company first makes its shares available for sale on an exchange, it’s known as an initial public offering or IPO. After an IPO, any further buying or selling of the company’s shares is referred to as trading. The exchanges match buyers who want to purchase the shares at a price called the bid, with sellers who are willing to sell them at the offer or ask price. The process is conducted with the help of computers operating at lightning speed, and is regulated by agencies like the SEC in the United States and FINRA in Canada.
Traders seek short-term profits by capitalizing on small changes in the prices of particular stocks, while investors hold on to their shares for long periods, often through a retirement account or other long-term investment vehicle. Many individual investors build diversified portfolios that include stocks from many different companies. Other investors follow the performance of particular indexes, such as the Dow Jones Industrial Average or S&P 500, to get a broad picture about how the market is performing.