A stock market is a place that matches shares of public companies with interested investors. Often the buyers are individuals who want to purchase shares for cash, and the sellers can be either new entrants into a stock, as in an initial public offering (IPO), or private investors looking to resell shares they have already purchased.
Investors have many options for buying and selling stocks, but most trades take place on exchanges such as the NYSE and Nasdaq. These markets have set rules that ensure fair trading practices and make it easy to see stock prices at any point in the day. Individuals can buy and sell shares for cash, or they can leverage part of the transaction by borrowing money from brokerage firms. This is known as buying on margin, and it typically involves a minimum amount of cash that must be kept in the account at all times.
The price of a share changes constantly, depending on demand from investors who want to buy, and supply from existing shareholders who are willing to sell. Investors decide to buy and sell shares based on their assessment of a company’s future prospects, economic conditions, and other factors.
The stock market also includes other investment vehicles, such as bonds that are issued by governments and corporations to raise capital, or commodities like oil, wheat, gold, and copper that are traded directly or through contracts based on their value. The markets are regulated by government agencies, including the Securities and Exchange Commission and state securities regulators. Today, Americans hear about the stock market far more often than in the past because it’s tied into millions of people’s retirement and investment strategies, such as 401(K) plans.