What is the Stock Market?

Like the term "Hollywood," the stock market is both place and concept. There are stock markets all over the world, but when you put them all together, you have the bigger concept: a global marketplace where companies go to grow. A company does this by selling stock , which is partial ownership or a share of the corporation. If the company is growing, the value of each share usually goes up. (Unfortunately, the reverse is also true.) Stockholders (otherwise referred to as shareholders) hope the company’s stock price will go up—at which point they can sell their stock for a profit. Where that happens is the stock market. You’ve seen the numbers crawl across the bottom of your TV screen when you're watching a business news channel, or those tickers that wrap around buildings. Watching the numbers fly by, you might think every stock has a predetermined price. In reality, the stock market works like an auction: Sellers decide what price they’ll accept, buyers decide what they’ll pay. Stockbrokers—or computers—call out those numbers to try to find matching offers. If they do, they make the trade. In the United States, most stock markets are open from 9:30 a.m. to 4 p.m. Eastern time.

Sometimes a private company decides to go public. It will divide its ownership into any given number of shares and sell off some of those shares in an initial public offering (IPO). This growth can help build new facilities, ramp up research or expand into new markets. The company can also begin to offer stock options in employee benefit plans. There's a lure to the prestige of being listed on a major stock exchange. A company must weigh these benefits against the time and expense of an IPO (which requires bank underwriters), regulatory requirements and the possible loss of control to outside investors. Speaking of prestige, let's look at Apple as an example. In 1980, its IPO raised $101.2 million which was massive for a tech company at that time. If you had bought $1,000 worth of Apple stock in 1980, you'd be sitting on $430,000 in 2018.

How Do Stock Exchanges Work?

Stock exchanges are particular networks within the broader stock market where stockbrokers meet. Exchanges provide companies with the opportunity to grow and flourish in the United States and around the world. Nasdaq, the first electronic stock exchange, was founded in 1971. With a focus on technology and innovation, Nasdaq grew to become the most active exchange in the U.S. Today, it’s home to many major companies that have literally changed the way we live – think Google, Amazon, Netflix, and many more. On any given day, more than 2 billion shares are traded on the Nasdaq, from more than 4,000 listings with a market value of approximately $12 trillion. Downtown from Nasdaq's Times Square headquarters sits the New York Stock Exchange, which was founded in 1792. Unlike Nasdaq, the NYSE is only partially electronic: some business is still conducted every day by human traders on the floor. Both Nasdaq and the NYSE are publicly traded companies—on their own exchanges. Every stock exchange writes its own rules for corporations that want to trade their stock there. These rules can include how long the company has existed, how many shares are held publicly, and how much net income the company reports. Because the Nasdaq is open to listing smaller, newer companies than the NYSE, most U.S. IPOs are launched there. At the same time, each exchange must follow rules set by a larger governing body—in the United States, that would be the Securities and Exchange Commission (SEC).

NEWS + INSIGHTS EDUCATION THE STOCK MARKET: WHERE BUYERS AND SELLERS MEET

How to Invest

The Stock Market: Where Buyers and Sellers Meet

A guide to what the market is, and what it means

What is the Stock Market?

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What is an IPO?

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How Do Stock Exchanges Work?

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How to Invest

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The investment fund that trades like a stock
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