A stock market is a network of people that buy and sell shares of companies, providing the liquidity (or money supply) that fuels modern economies. It’s a global marketplace with laws protecting against fraud and other unfair trading practices. People purchase stocks for a variety of reasons. Some look for a return on their investment, like the dividends paid by some companies, while others seek to have a say in how particular companies are run, using their shares as votes at shareholder meetings. Investors may also purchase mutual funds or exchange-traded funds that hold diversified mixes of hundreds of stocks already, helping to lower their overall risk.
When it comes to individual stocks, prices change based on a company’s current performance and its prospects for the future. The price of a stock rises as demand increases and falls as supply decreases. In the longer term, investors look for a company to grow sales and profits so their stock will increase in value.
Buying and selling stock involves a trade of price, which is calculated based on the difference between the seller’s “bid” and the buyer’s “ask.” When a bid or ask is higher than the other, no sale occurs. Investors can manipulate this process by leveraging the bid-ask spread, or by engaging in short selling or margin buying.