The stock market is a big marketplace that brings together people who want to sell stocks (also called shares) with people who want to buy them. Buying stocks allows you to own a part of a company, and potentially make money when the value of those shares go up. Companies can raise money by selling stocks, and then use that cash to grow their businesses.
A company’s earnings power and its future prospects largely determine whether the demand for its shares is strong enough to drive up their prices. Various other factors can influence demand, too, such as a company’s profitability, industry trends, the economy here and abroad, and investor sentiment.
Most individuals who trade in the stock market do so through a broker, who acts as a go-between between buyers and sellers. The broker charges a fee for each buy or sell order, and usually has its own set of rules for the trades it facilitates.
In addition to the traditional buy-sell process, the stock market also offers other ways to invest in the shares of a company, such as short selling and margin buying. In the latter, traders may borrow funds to buy a certain number of stocks and hope that they will rise in value before they must return that amount to their brokers. Most industrialized countries regulate the extent to which this is allowed, generally by requiring that a trader put up a certain percentage of the shares purchased.
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