What is the stock market?
The stock market, or equity market, is a series of exchanges where shares in public companies are issued, bought and sold. Its role is to give private investors a way to own a stake in a listed company, while providing the companies themselves with a capital to reinvest in their business.
How does the stock market work?
In order to raise money companies sell shares. The shares are issued in their stock through a process called an initial public offering, or IPO. Once a company’s stock is on the market, it can be bought and sold among investors. Often people who want to buy a certain company’s stocks end up buying it from an investor who is selling the stocks not from the company itself. The same will happen if you want to sell a stock, you’ll sell to another investor who wants to buy.
These traders are handled through a stock exchange, with a broker representing each investor.
If a company is doing well and its stock is popular the price goes up. If the economy isn’t doing so well or that company has a bad day in the press, the price may go down. These fluctuations impact how much your share of that company that you already bought is worth in your portfolio. If you decide to sell your shares while the stock price is up, you may get more money in the sale than you initially paid. If the stock price is down when you sell, there is a chance you’ll lose money.
The first stock market appeared in Europe in the 16th and 17th centuries, mainly in port cities or trading hubs such as Antwerp, Amsterdam, and London. In the late century, stock markets began appearing in America, notably the New York Stock Exchange which allowed for equity shares to trade. Today, there are many stock exchanges in the U.S. and throughout the world, many of which are linked together electronically.
How do you invest in the stock market?
Many studies suggest that over a long period of time, stock generates investment returns that are superior to those from every other asset class.
However, if you’re not sure what type of investment to pick, or concerned you might take on too much risk, there are plenty of free websites packed full of detailed fund and stock market information.
