The stock market is a network of exchanges where companies raise money by offering shares in their business to investors. When a share is purchased, an investor becomes part owner of the company, and profits can be earned in two ways: dividends and price appreciation.
A public company can list its shares on a stock exchange like the New York Stock Exchange or Nasdaq after conducting an initial public offering (IPO). The share prices on these exchanges are constantly fluctuating as buyers and sellers negotiate new prices for their stocks. This process is called price discovery, and it’s what drives the market as a whole.
There are many things that affect the stock market, from new product launches to global events. Generally, markets tend to rise and fall in tandem with economic indicators. For example, tax cuts can boost a country’s economy and increase stock values, while high unemployment may drive down stocks and lead to more layoffs.
It’s important to note that investing in the stock market is not a great idea for people who need the money they’ve invested back within a short period of time. For those with a longer-term investment horizon — like retirement — it can be an excellent choice for building long-term wealth. The Securities and Exchange Commission and the Financial Industry Regulatory Authority create rules and guidelines that protect investors from scams and ensure the fairness of the stock market. These organizations also regulate large market participants, such as banks and investment funds, to prevent them from unfairly manipulating the markets.