The stock market is a financial marketplace that matches those who want to buy securities with those who want to sell them. People invest in stocks in the hope of earning returns from price appreciation and dividends. They can purchase shares directly on their own (known as a self-directed brokerage account), or through an investment advisor who makes trades for them.
Only publicly traded companies that meet stringent regulations and disclosure requirements can offer shares for sale on a public exchange like the New York Stock Exchange or Nasdaq. Once listed, shares give investors ownership in the company and a voice in its decisions. Stock prices rise and fall based on supply and demand, with a higher percentage of buyers willing to pay more than a seller is willing to accept driving the price up. The opposite is true when the value of a stock falls, with fewer buyers willing to pay more than a seller wants to accept, driving the price down.
Investors can also buy and sell shares in exchange-traded funds (ETFs), which pool money from many individual investors to purchase a basket of securities. These investments are typically less risky and easier to diversify than buying individual stocks, but may come with lower returns.
In addition to stocks, the stock market also trades bonds, which are debt instruments that allow governments and corporations to raise capital by lending money in exchange for interest payments and a return of the original sum at maturity. It also trades commodities, which are raw materials like oil, wheat, and steel that are traded for their potential future value.