A stock market is the place where investors come together to buy and sell shares of a publicly traded company. Shares represent partial ownership of the business and give shareholders the right to some of the profits that the company makes. Companies need money to grow and the stock market allows companies to raise it by issuing shares.
Individual investors like you can buy and sell shares, but the big players in the market are institutions such as banks, investment firms, retirement and pension companies and endowments. These large financial players have professionals who specialize in analyzing stocks and determining what to buy and sell.
The stock market has two functions: It is a platform for companies to raise money and it serves as a proxy for overall economic health. Rising prices reflect investor confidence in the economy, while falling prices point to economic stress.
Historically, companies raised money by issuing shares and selling them directly to friends, family, and the general public. This was called the primary market. Today, the stock market operates largely on computers that match buyers and sellers of securities at lightning speed.
The price of a stock rises and falls in response to supply and demand for the stock. When more people want to buy a stock than there are willing sellers, the price goes up; when there is an oversupply of stock, the price goes down. There are also other factors that influence the market, such as fundamentals and technicals.