The stock market is where companies sell shares, a fractional ownership in their business, to investors. This allows them to raise money without borrowing and give their shareholders an opportunity to profit as the company grows. It also gives companies access to capital which they can use to grow their business or reward employees.
Stock prices rise and fall according to supply and demand. Many people want to buy a certain stock, pushing the price up, and others are willing to sell at any price, driving the price down. Stocks are traded on a stock exchange, such as the NYSE or NASDAQ, where people who want to buy and sell match up with brokers who can facilitate the transaction almost instantly.
When you want to buy a stock, you follow the prompts through your investment account to place a trade. You’ll usually enter the symbol for the stock, how many shares you want and what type of order you want to place (a market order or a limit order). The computers on an exchange will automatically execute your trade at either the ask price or the bid price (whichever is lower).
A healthy stock market has a big effect on a country’s economy. It helps companies raise capital and grow their businesses, which boosts the overall economy. But the relationship can work in reverse, too. For example, when the stock market falls, it can make people less able to afford goods and services, which hurts the economy.
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