The stock market is a place where anyone can buy and sell fractional ownership of publicly owned companies. It distributes control of the world’s largest businesses among hundreds of millions of individual investors, who make buying and selling decisions that determine each company’s value.
The price of a stock fluctuates based on supply and demand. For example, if more people want to buy shares in a particular company than are willing to sell them at a given moment, the stock’s price will go up. Similarly, if a company has more cash than it needs and decides to return some of its wealth to shareholders through dividend payments, the share price may fall.
Buyers and sellers meet to trade stocks through an exchange, which can be a physical building like the New York Stock Exchange on Wall Street or a computerized system such as Nasdaq. Orders for buying and selling are placed on an exchange, and brokers facilitate the transaction almost instantly. A potential buyer makes a bid for a specific stock and a potential seller offers an ask at a certain price. If the bid and offer match, a sale takes place.
Some individuals trade their own money, while others manage large funds for institutions like pensions, mutual funds and insurance companies. All of these players can influence the stock market by trading in large volumes, and many of them use popular online brokerage platforms to trade. Individuals can also invest in the market by opening an account with a broker and placing orders on the platform. Generally, these investors are called retail. Some traders are professional, but many are beginners who have no experience or a small amount of capital. In these cases, the trader often borrows money to buy shares, which are usually backed by collateral in other investments, such as bank accounts or real estate. This is known as margin buying.
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