The stock market is a vast, complex network that matches buyers and sellers of shares in companies. It is an essential part of modern economies, connecting millions of people with opportunities to earn money and a chance to participate in the growth of companies they care about.
The primary way that businesses raise money to grow their operations is by selling shares in the stock market. Those shares are bought and sold through an exchange, such as the New York Stock Exchange or Nasdaq. Buyers offer a price they’re willing to pay for the stock (the bid) and sellers offer their asking price. When the bid and ask match, a sale is completed. The process is based on the efficient-market hypothesis, which is a theory in financial economics that states that prices reflect all available information at any given time.
In addition to buying and selling individual stocks, traders often buy what are called mutual funds, which track the entire market. Often, these funds are low-cost index funds or ETFs that follow a benchmark such as the S&P 500 or the Dow Jones Industrial Average. These funds are generally considered safer than individual stocks because if one company’s share price goes down, the entire fund’s performance doesn’t necessarily decline in lockstep.
Stocks are also sometimes purchased for income from dividends and to gain voting rights in shareholder meetings. Investors who hold their stocks for long periods of time, like 15 years or more, are often rewarded with strong returns.