The stock market is a place where anyone can buy and sell fractional ownership of publicly traded companies. It distributes control of some of the world’s largest companies among hundreds of millions of individual investors. This distribution of share ownership gives each investor the chance to make money in two ways: dividends and capital appreciation (when the price of a company rises).
Each stock is listed on an exchange, where buyers and sellers can meet to trade it at a transparent price. Each exchange tracks the supply and demand for the stocks it lists, which directly affects their prices.
A stock’s price on any given day can be affected by many factors, from the company’s earnings report to global economic trends. But in the long run, a company that grows its sales and profits should see its shares rise — and vice versa.
The market is regulated worldwide to protect investors and promote fair practices. The Securities and Exchange Commission in the United States oversees market participants, including large companies and investment funds. Similar agencies exist in other countries to address their unique cultures and expectations.
If you’re a beginner, one way to invest safely is with index funds that track the whole market. They reduce the risk that a single company, like Apple, will cause your entire portfolio to crash when it has a bad day. Another option is to use what are called ETFs, which follow either a specific industry like health care or technology or a group of companies within a country or region.