A stock market is a place where entrepreneurs raise money to start companies by selling shares in their business. Investors then buy those shares, hoping they’ll rise in value until they can sell them for a profit. Those profits may depend on company performance, economic conditions and other factors. The stock market is often used as a gauge of the overall economy, with rising prices associated with growth and falling ones indicating trouble ahead.
There are a number of different ways to invest in stocks, including direct ownership through a company or an exchange-traded fund (ETF). You can also buy and sell shares on the secondary markets, where investors trade with each other. There are a growing number of online trading platforms that connect buyers and sellers. The NYSE and Nasdaq are the primary trading venues for public stocks in the U.S. Other exchanges exist worldwide.
The stock market acts as a matchmaker each day it’s open, pairing interested stock sellers with people looking to buy. Sellers can be companies offering their shares through an initial public offering or other shareholders who are looking to resell their shares. Buyers can be individuals or institutions such as mutual funds, exchange-traded funds, banks and insurance companies. Robo-advisers that automate investments are also major participants in the market.
When you hear reports of the stock market being up or down, it generally refers to a group of stocks called an index. These are usually grouped by size and value of the company. Two popular examples are the Dow Jones Industrial Average, which follows 30 large publicly owned companies, and the S&P 500, which tracks 500 large public companies.