What Is the Stock Market?
The stock market is a global network where people buy and sell ownership shares of companies. Learn how it works and why transparency matters.
The stock market is a place where people buy and sell ownership shares of companies. When you buy a stock, you own a small part of that company.
Many people think the stock market is just the NYSE (The New York Stock Exchange) or Nasdaq (National Association of Securities Dealers Automated Quotations), but in reality, it’s a global network of exchanges, online platforms, and marketplaces where companies raise money and investors grow their wealth.
Real-World Example
Imagine a bakery that wants to expand by opening more outlets. Instead of taking a big loan, the owner divides the business into small parts called shares and sells them to the public. If you buy one share, you now own a small part of that bakery—and benefit if it grows.
Why Companies Use the Stock Market
Companies enter the stock market to raise money (capital) for:
- Expansion
- New products
- Technology upgrades
- Research and development
Instead of borrowing money and paying interest, companies raise funds by selling shares.
How the Stock Market Works (Simple Explanation)
The stock market works through a buy-and-sell system:
- Companies issue shares to the public (IPO).
- Investors buy shares using trading platforms or brokers.
- Shares are traded between investors on stock exchanges.
- Prices change based on demand and supply.
Anywhere you can legally buy or sell a part of a company, that place is part of the stock market.
Why People Buy Stocks
People invest in stocks for different reasons:
- To earn dividends (regular income from company profits)
- To grow wealth by selling shares at a higher price
- To gain voting rights in company decisions
- To beat inflation over the long term
What Are Public Companies?
Not all companies can sell shares to the public. Public companies are those that:
- Register with the market regulator
- Follow strict financial disclosure rules
- Publish quarterly and annual reports
In India, this is regulated by SEBI. In the U.S., it’s regulated by the SEC.
How Companies Go Public
1. IPO (Initial Public Offering)
The most common method. A private company offers shares to the public for the first time.
2. Other Methods
Some companies use alternative routes like mergers or special purpose entities to get listed.
What Is a Stock (Share)?
A stock represents ownership in a company.
- Small companies may have fewer shares
- Large companies may have billions of shares
Why Stock Prices Change
Stock prices move because of:
- Company profits or losses
- Investor demand
- Economic conditions
- Interest rates
- News, policies, and global events
If more people want to buy a stock than sell it → price goes up
If more people want to sell than buy → price goes down
What Is a Stock Exchange?
A stock exchange is an organized platform where stocks are bought and sold.
Popular stock exchanges include:
- NYSE & Nasdaq (USA)
- NSE & BSE (India)
- London Stock Exchange
- Tokyo Stock Exchange
Why Exchanges Are Important
- Ensure fair trading
- Provide transparency
- Offer liquidity (easy buying & selling)
Over-the-Counter (OTC) Market
Some stocks are traded outside exchanges in the OTC market.
- Used mainly for small or less-known companies
- Less regulation
- Higher risk for investors
Other Assets Traded in the Stock Market
The stock market is not just about shares. It also includes:
- ETFs: Funds that track indexes or sectors
- Mutual Funds: Pooled investments
- Preferred Stocks: Fixed dividends
- REITs: Real estate investment companies
- Derivatives: Options & futures
- ADRs: Foreign companies trading locally
Investors vs Traders
Investors (Long-Term)
- Focus on growth over years
- Study company fundamentals
- Buy and hold stocks, ETFs, mutual funds
Traders (Short-Term)
- Focus on price movements
- Buy and sell frequently
- Higher risk, higher skill required
Role of Brokers
Brokers act as a bridge between investors and the stock market.
Types of brokers:
- Full-service brokers: Advice + portfolio management
- Discount brokers: Low-cost, self-managed
- Online brokers: App-based platforms
- Robo-advisors: Automated investing
All brokers are regulated to protect investors.