A stock market is a vast network of trading activities that matches investors who want to buy shares of companies with others willing to sell them, all conducted at lightning speed. A share of a publicly traded company is a tiny part of that company, and its value rises or falls with the fortunes of that business.
People purchase stocks for a variety of reasons. Some seek income from dividends, which are payments to shareholders based on how much a company earns. Others invest in the hope that a company will grow so they can sell their shares at a higher price and profit from their investment. Some are concerned about how a company’s management operates, and they vote at shareholder meetings based on the number of shares they own.
There are many ways to invest in the stock market, including low-cost mutual funds and exchange-traded funds (ETFs), which track a broad market index like the Dow Jones Industrial Average or the S&P 500. There are also country-specific indexes, such as the Nikkei 225 and the FTSE 100. And there are sector-specific indexes, such as energy or health care.
What determines a stock’s price is basically supply and demand. If lots of investors want to buy a company’s shares, the price goes up; that, in turn, entices current shareholders to sell their shares for a profit. A lot of things can affect demand: good or bad news about a company; growth in the economy in general, at home and abroad; and so on.