The stock market, also called the equity market, is where companies and other investors trade shares. The concept of a stock market is so broadly applied that the terms often seem interchangeable, although there are distinctions. The actual trading takes place on exchanges, like the NYSE and Nasdaq, which act as central locations for buying and selling securities, or stocks. Exchanges also provide real-time trading information, which is why you’ll see a stock price on just about any business news site.
Public companies, referred to as publicly traded or listed, issue stocks so they can raise money from normal people. This money can help them grow their business, and they offer the investors a share of any profits they make. In the short term, the stock market moves based on investor expectations about future earnings or economic conditions. For example, a tax cut may buoy the stock market because consumers have more income to spend, while high unemployment can lower the stock market because companies are cutting back on jobs and investing less in new equipment.
A stock’s price is determined by supply and demand. If a lot of people want to buy a stock, its price will rise; if not, it will fall. Many of the people who are interested in buying and selling stocks are large institutions, like banks, mutual funds, hedge funds, insurance companies, pension and retirement companies, and endowments. But even individual retail investors can buy and sell stocks, and the vast majority of Americans are invested in the stock market without really knowing it. They’re in it through their 401(K)s and other employer-sponsored savings plans, or they’re in it by owning stocks directly.