The stock market allows anyone to buy and sell part ownership in a publicly traded company. Investors buy and sell stocks in order to grow their wealth by investing in companies that they believe will succeed and grow their profits. This process helps to allocate resources where they’re needed most and promotes economic efficiency through price discovery (the buying and selling decisions of investors reveal the fair value of stocks based on available information).
Shares represent partial ownership of a company, each share representing one unit of ownership. Companies issue shares to raise money for their business operations. As the demand for a particular stock increases due to favorable news, rising profit expectations, or investor optimism, its price rises. Conversely, when current shareholders want to get rid of their shares for a profit or due to negative news or poor performance, the price drops. This is the law of supply and demand at work, and why the stock market moves up and down on a daily basis.
A market’s job is to bring buyers and sellers together and negotiate prices. The price of a stock is determined by the difference between the best bid and the best ask. This negotiation happens in a trading platform called an exchange, the most famous being the New York Stock Exchange and NASDAQ, where large companies from around the world trade with each other. The price of a particular stock can also move in tandem with the price of other stocks on the same exchange for reasons related to specific news events, or more broadly as economic, political, and global factors affect the market as a whole.