What is the Stock Market – A Brief Primer

For many businesses and people, the stock market is an essential way in which businesses build value and provide an investment vehicle for many people, institutions and even countries. We’ll discuss more about just what is the stock market and the impact it can have on modern society.

Basically the stock market is a place where stocks and bonds are traded. This means that they are bought and sold. The stock market is not limited to just one place. There are many stock markets all over the world. We associate Wall Street in NYC with the stock market in the US. However it really entails a way for companies to issue and raise money through the sale of a portion of their company in the form of stocks.

In other cases a company can issue bonds which are a way for people to essentially lend money to the company. The bonds pay dividends which is a form of interest.

In any case as indicated earlier people use the stock market to buy and sell stocks and bonds. Stocks represent a portion of company ownership. Therefore if you want to own a portion of GE for example, you can do so by purchasing one or more shares of GE stock.

People invest in stocks or bonds as a way to make money through investing. The goal of an investor is to buy stocks at a certain price and then sell those shares to someone else at a later time for a higher price.

The investor hopes that the price will be higher due to positive operating results from the company. In other words, the better a company performs the higher its stock price generally is.

Companies seek to issue stocks or bonds to help raise money for a number of different purposes. They may use the money to find better ways to produce products. Or they can use the money to help launch programs to develop completely new products. It may also allow the company to hire more workers to satisfy increased demand. Or the company may wish to use the money to expand or modernize the buildings the company operates out of.

Again in simple terms, if you purchase stock from a company you become a shareholder and essentially own a portion of that company. If the profits of the company improve, you are generally given the opportunity to share in the excess profits the company earns since you own a portion of the company. This is known as dividends.

And in general if the company performs favorably, the demand for its stock improves and the price rises as well. Conversely if the company does not perform well, the demand for stock can decrease and the selling price for that stock can go down.

These transactions and the manner in which prices are determined happen within a stock market. Certain companies are able to list stocks or bonds for sale on a specified stock market and make them available to the general public.

As indicated earlier, there are many stock markets around the world. Certain companies are able to have their shares or bonds listed and sold on particular stock markets. And most investors have the option to buy these shares or bonds from a wide variety of stock markets. Stock markets are an important part of international commerce and will continue to play a vital role in most world economies.