For those who don’t invest, the stock market might seem like a foreign language. But, if you have an interest in investing, it’s important to understand how the market works and to be familiar with the lingo.
The stock market started as a place for entrepreneurs to raise money for their businesses by offering shares of ownership in the business to investors. As the fortunes of the company rose or fell, so did the value of the shares. Investors can use the stock market to potentially make money on their investments over time, and they also get a share of the profits in the form of dividends.
Stocks are traded on a number of exchanges, including the New York Stock Exchange and Nasdaq, where people who want to buy or sell stocks match up with brokers who facilitate the transaction. The price of a stock is determined by supply and demand, and it’s constantly changing as information about the company or its industry enters the marketplace.
Aside from individual companies, the stock market includes real estate investment trusts (REITs), which are companies that own or finance real estate; bonds, which are essentially loans to governments and corporations; and commodities, such as oil, gold, wheat, copper and steel. Regulators in many countries oversee the market to ensure fair practices and protect investors, as well as to promote confidence in the overall system.
Many people don’t actively participate in the stock market, but their daily lives are affected by its movements. For example, the market drives funding for technological advances like new smartphones or medications, and a healthy stock market generally correlates with a robust economy.
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