The stock market is an aggregation of physical and virtual markets around the world where investors can buy and sell shares in publicly-traded companies. While stocks are a big part of what makes up the market, other investments include real estate investment trusts (REITs), bonds, and commodities.
The first modern stock exchanges began in Europe in the 1600s, where entrepreneurs raised money by selling shares in their businesses to investors who would then become partial owners of the business and benefit from any profits — and losses — that arose from the company’s success. Over time, the value of a company’s stock is based on the company’s performance, and its future prospects. Businesses that grow sales and profits see their stock prices rise, while businesses that shrink or fail see their stock prices fall.
To trade a share of stock, you need to contact a broker who can facilitate the sale or purchase on your behalf. The brokerage industry is regulated by federal and state authorities including the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA), which is more focused on protecting retail investors. Brokers often make money by charging a fee for each transaction, or by earning a commission if they sell you the stock on its lowest available price.
The stock market’s moves affect the economy overall, influencing corporate decision making (hiring and firing can boost a company’s stock prices) and expanding or contracting job numbers, which impacts consumer spending. Many Americans also hear about the stock market as it relates to their personal finances, as their 401(k)s and individual retirement accounts are largely invested in stocks.