The stock market is where investors buy and sell fractional ownership of publicly traded companies. It distributes control of the world’s largest businesses among hundreds of millions of individual investors whose buying and selling decisions help shape their value.
The market acts like a kind of matchmaker, pairing stock sellers with interested buyers. Sellers can be a company selling shares in its initial public offering (IPO) or, more commonly, existing shareholders who want to resell some of their shares. Buyers can be companies looking for capital or individuals seeking to diversify their retirement portfolios. In the end, the law of supply and demand determines the market’s prices.
If demand is greater than supply, the price of a share will rise; if supply is higher than demand, the price of a share will fall. This dynamic shapes broader market trends and provides the backdrop for news reports about the ups and downs of the DJIA or S&P 500.
Some stocks are traded on major exchanges like the New York Stock Exchange or Nasdaq, where they must meet strict regulations and financial disclosure laws. But other shares, like those of real estate investment trusts, trade over the counter or on specialized markets. Investing in these is ideal for long-term horizons, such as retirement, but not for money you need to use in the near future. Investors can also choose to buy mutual funds or exchange-traded funds (ETFs) that hold diversified mixes of hundreds of stocks already.
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