The stock market started as a way for entrepreneurs to raise money by offering shares in their companies to the public. In exchange for their money, investors received a portion of the company’s profits in the form of dividend payments or through increased share value. Today, the vast majority of trading on popular exchanges like the New York Stock Exchange or Nasdaq takes place electronically. Intermediaries match buyers who want to buy a stock with those who are willing to sell it, and the transactions go through almost instantaneously. Each buyer offers a price that they are willing to pay, called the bid, and each seller offers a price that they are willing to accept, known as the ask. If the bid and ask match, a trade goes through.
Stock prices rise and fall based on supply and demand, which is affected by a variety of factors. For example, if investors are eager to buy shares in a company that has been generating strong profits, the demand for those shares will increase and their price will go up. On the other hand, if investors are reluctant to buy stocks in a company that has been posting poor results, their demand will decrease and the stock’s price will go down.
Many people don’t participate directly in the stock market by buying individual stocks or selling shares they own, but everyone is affected by its movements. For one thing, a healthy stock market tends to correlate with a stronger economy. It also drives funding for technological advances like smartphones and medications, and it influences corporate decision-making and the number of job creations or layoffs.