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What is the Stock Market?

Jaiya Gill

What is the Stock Market?

​​What is the stock market and how does it work? Here’s a simple guide to help you get started.

What is the Stock Market?

The stock market is where buyers & sellers come to trade shares in publicly listed companies and other securities such as Exchange Traded Funds (ETFs). The trading happens in various stock exchanges around the world like the New York Stock Exchange and Nasdaq that together make up the stock market. Initial public offering or IPO is the process that lets companies list shares of their stock on an exchange for investors to purchase. 

How does it work?

The purpose of the stock market is to allow companies to raise money to fund operations by selling shares of stock and also create and sustain wealth for public investors. By offering shares instead of borrowing capital as needed, the company avoids incurring debt. Investors can also share in the profits of a publicly-traded company. If a company does well, its share price increases, and investors can sell their shares for a profit. Share prices are essentially set by supply and demand as buyers and sellers place orders. The supply and demand are influenced by a lot of different factors such as the company's earnings news, announcements, the economy, traders' sentiments, and a lot more.

Stock markets allow buyers and sellers to negotiate prices and make trades.

It operates like auctions where potential buyers name the highest price they're willing to pay per share (the bid), and potential sellers name the lowest price they're willing to accept (the ask). Stockbrokers make the trades happen on behalf of investors. For the most part, the stock market is open to anyone, so you don’t have to officially become an “investor” to invest in it.

Things to consider:

When you purchase a public company’s stock, you’re purchasing a small piece of that company. There's a lot of nitty-gritty involved in following the stock market closely and it’s hard to track every single company. Investing in the stock market also comes with risks, but it can be done safely with the right investment strategies. A proven way to build wealth over time and invest safely is to invest in the stock market for the long term and through the ups and downs. The easiest way to stay on top of the whole market is through indices such as the S&P 500 & the Dow Jones Industrial Average. To learn more about indexes take a look at What is an Index?

In a nutshell, indices cover the best companies across every major industry that make up most of the stock market, so tracking how an index is doing is an indicator of how the entire stock market is doing. Alongside is on a mission to lower the barriers and make it simple for anyone to get exposure to the world of crypto through indexes.

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