The stock market is a global system that distributes control of some of the world’s largest companies among hundreds of millions of individual investors. The buying and selling decisions of these investors drive the market’s prices, which change constantly based on many factors.
A share of a company represents a fractional ownership in that company and gives the owner a right to some of that company’s profits, which are often paid as dividends, as well as voting rights on company matters. The stock market serves two important purposes: it helps private companies raise funds by offering shares of their company to the public (an initial public offering or IPO), and it allows investors to buy and sell these shares.
Investors and traders place orders to buy or sell shares, known as securities, on an exchange like the New York Stock Exchange (NYSE) or Nasdaq. The negotiated price at which the order is filled—the bid price when buying or the ask price when selling—determines the market’s prices for securities. Investors can try to control the price they pay or receive by using a limit order, which will only execute trades at the best available price, or a stop order, which will trigger a trade when the price reaches a certain level.
The market’s main participants are retail investors, who place individual orders, and institutions, such as pension funds, mutual fund managers, banks, insurance companies, hedge funds, and investment firms. There are also market makers and broker-dealers, who act as auctioneers and buyers and sellers on behalf of the larger markets and may be compensated for their role.