The stock market is an essential part of the economy, where private businesses raise money to accelerate their successes and expand or pay off debt. People who invest in those companies get shares (or pieces of a company) that represent their investment and the profits or losses – and voting rights – are shared with the rest of the shareholders. The value of those shares fluctuate up and down as the fortunes of the company rise and fall, but the performance of large-company stocks as a group has historically been good for investors.
Those fluctuations are largely driven by supply and demand. If lots of investors want a particular share, the price goes up, enticing existing shareholders to sell. That can happen when a company reports better-than-expected results, when the economy here and abroad is growing faster than expected, or when political and world events threaten the future of a business or industry.
In addition, the exchanges where stocks are traded, notably the NYSE and Nasdaq, set rules that govern how buyers and sellers match up on their platforms. These rules include regulations on preventing fraud, maintaining price transparency and ensuring that the best “bid” (the price a buyer is willing to pay) and the best “ask” (the price a seller wants to receive) are displayed clearly to participants.
Individual retail investors, investment firms, large corporations and financial institutions are all major players in the stock market. People who invest their own money directly in company shares are called retail investors and are typically able to purchase stocks through brokerage accounts that connect them with the markets via technology.