If you listen to discussions about the stock market, it can feel like hearing a language you don’t understand. And that’s because, for many investors, the stock market isn’t just something that happens from a few buildings on Wall Street.
It’s a place where anyone can buy and sell fractional ownership of a publicly-traded company, also known as an equity. A share of a company represents your investment in that business, and its value rises and falls with the fortunes of the corporation.
The stock market is regulated to ensure fair practices and protect investors. In the United States, the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) regulate all markets participants, from large companies to everyday investors. While regulations vary across countries and cultures, they generally focus on creating rules that protect retail investors from bad actors and promote confidence in the market.
There are two primary ways that people profit from owning stocks: dividends and capital appreciation. Companies issue shares in order to raise money that they can use to grow their businesses, and the values of those shares rise and fall with the company’s fortunes.
Investors can purchase individual stocks or invest in market index funds and exchange-traded funds, which hold many stocks at once. These investments are often less expensive than investing directly in individual stocks. And since they track a specific benchmark, like the Dow Jones Industrial Average or S&P 500, they can be good indicators of how well the overall market is doing.