The stock market is a collection of people and companies who buy and sell shares of publicly-traded companies. Owning stocks gives you a part of a company’s profits, often paid out as dividends, and the right to vote on company matters. Stock markets are heavily regulated to ensure fair practices and financial disclosures. For example, margin requirements are high in the US to prevent speculation and limit losses from price fluctuations.
Investors can buy or sell through a stock exchange, which acts like a matchmaker that pairs buyers and sellers at transparent prices. Sellers can be companies selling their own stock through an initial public offering, or individuals looking to resell shares they bought from someone else. Exchanges also provide real-time trading information, facilitating the process of “price discovery” (the current state of supply and demand).
Most Americans first learn about the stock market through a handful of indexes that give a snapshot of how the entire market is doing. These are typically the Dow Jones Industrial Average or the S&P 500, and you can see them reported in news headlines on a daily basis.
Aside from allowing companies to raise capital and provide shareholders with a potential return on their investment, the stock market is important for its role as a barometer of the economy. It is a central component of the global financial system and is increasingly used as a tool for wealth distribution. As a result, it is highly correlated with socioeconomic trends.