The stock market is a place where investors can buy and sell fractional ownership of publicly traded companies. Shares of a company represent part ownership in the business, and as the value of the company rises, the value of the shares also goes up. The market connects buyers and sellers through exchanges, which can be physical like the New York Stock Exchange (NYSE) on Wall Street in Manhattan or electronic like Nasdaq. Exchanges regulate how buyers and sellers interact to ensure fairness for all.
Investors who own shares can receive a portion of the company’s profits, often paid as dividends and have the right to vote on matters of the company. The average annual return on the stock market is around 10%, but returns can vary from year to year.
Some stocks are more likely to gain or lose value than others, depending on whether the general economic conditions are good or bad. Some people choose to invest in individual stocks, while others put their money into mutual funds or exchange-traded funds (ETFs) that contain a diversified mix of hundreds of different stocks.
When a private company first makes its shares available to the public, it’s called an initial public offering. The company is then considered to be a “listed” company, which must meet specific requirements set by the exchanges in order to continue trading. These requirements include how often the company reports its financial information, as well as what kind of board members it has.
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