The stock market is a financial marketplace that matches those who want to buy securities with those who want to sell them. Individuals can invest in stocks through a licensed broker or investment advisor that makes trades on their behalf, or they can open an individual brokerage account and manage the investments themselves (sometimes called a “self-directed brokerage account”). Investors can also choose to purchase shares in exchange-traded funds, mutual funds and other pooled vehicles.
A company’s share price can rise and fall for many reasons, from internal events like a product recall to economic news that can impact consumer spending. The overall economy has a significant impact on the stock markets, so that’s why you hear about things like tax cuts and high unemployment affecting the value of a specific industry or group of stocks.
In the US, stock market participants include individuals investing on their own or with a financial professional, institutions like pension funds and insurance companies, mutual and index funds, and even banks that trade their own shares. Robo-advisors that automatically make investment decisions for individuals are also a growing presence.
The market is regulated, both in the United States and around the world, by a variety of agencies including the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). These agencies create rules that aim to protect investors, maintain fair practices and build confidence in the broader markets. Individuals can control the prices they pay or receive when trading by using a limit order, stop-loss orders and other advanced strategies. Regardless of their strategy, long-term investors that stick with their investments over time have historically seen strong returns.