What is the stock market? – Councilor Forbes
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The stock market is a constellation of exchanges where securities like stocks and bonds are bought and sold. In the United States, “the stock market” and “Wall Street” can refer to the entire world of securities trading – including the exchanges where the shares of public companies are listed for sale and the markets where other securities are traded. .
How does the stock market work?
The stock market helps companies raise money to finance their operations by selling stocks, and it creates and maintains wealth for individual investors.
Companies raise funds in the stock market by selling stakes to investors. These equity investments are called equity shares. By listing shares for sale on the exchanges that make up the stock market, companies have access to the capital they need to operate and develop their businesses without having to go into debt. In return for the privilege of selling shares to the public, companies are required to disclose information and give shareholders a say in how their businesses are run.
Investors profit by exchanging their money for stocks in the stock market. As companies put that money to work to grow and grow their businesses, investors reap the rewards as their stocks become more valuable over time, resulting in capital gains. In addition, companies pay dividends to their shareholders as their profits increase.
The performance of individual stocks varies widely over time, but as a whole the stock market has historically rewarded investors with average annual returns of around 10%, making it one of the most reliable ways to do it. grow your money.
Stock market vs Stock market
Although the terms are used interchangeably, the stock market is not the same as a stock exchange. Think of a stock exchange as part of a whole – the stock market includes many exchanges, such as the Nasdaq or the New York Stock Exchange (NYSE) in the United States.
When people talk about the performance of the stock market, they are talking about the thousands of public companies listed on multiple exchanges. And more generally, the stock market can be thought of as encompassing a very broad universe of bonds, mutual funds, exchange-traded funds (ETFs) and other securities beyond stocks.
What is a stock market index?
A stock index tracks the performance of a group of stocks that represents a particular industry or segment of the stock market, such as the technology, energy, and transportation sectors. Often, one of the big three indexes is used as a shorthand to describe the performance of the US stock market as a whole:
- Dow Jones Industrial Average (DJIA). The DJIA is made up of 30 blue chip stocks of US industrial companies.
- NYSE Composite Index. The NYSE Composite Index tracks the price movements of all common stocks listed on the New York Stock Exchange.
- S&P 500. The S&P 500 represents 500 of the largest companies in the US economy.
Other types of markets
The stock market generally refers to the markets and exchanges where stocks and related securities are traded. Other types of financial assets have their own markets.
- Over-the-counter (OTC) markets. OTC describes securities transactions that take place outside of the major stock exchanges. OTC transactions are mostly done directly between sellers and buyers, and prices may or may not be publicly available. Most bonds are traded over-the-counter, and many stocks, including penny stocks, are also traded over-the-counter.
- Commodity markets. Commodities like steel, coal and petroleum are traded in commodity markets. There are around 50 major commodity markets around the world that facilitate trading in a wide range of commodities.
- Derivatives. Derivatives are financial contracts like options whose value is linked to an underlying asset. These are essentially contractual bets on the rise or fall in the value of individual securities. For experienced investors, derivatives can be extremely lucrative ways to hedge their bets when investing, and they can be incredibly risky for beginners.
- Foreign exchange markets. Forex trading is an international market without borders for the exchange of currencies. Forex traders take advantage of the constantly fluctuating values of different currencies to make profits and help provide liquidity for international trade.
- Cryptocurrency. Bitcoin and Ethereum are cryptocurrencies or decentralized digital assets based on blockchain technology. Cryptocurrencies are traded on specialized crypto exchanges.
How to invest in the stock market
If you want to invest in the stock market, the process of getting started is easier than you might think:
- Decide on the type of account you want to open. From retirement savings to college savings, short term goals to long term goals, there really is an investment account for everything.
- Open a brokerage account. Once you have decided on the type of account you want, you are ready to open an account with a provider called brokerage. When choosing a business, consider its fees and available investment options.
- Deposit money. To get started, you need to make an initial deposit. You can also set up recurring deposits to automate your investments in the future.
- Choose your investments. Once your account is opened, you can buy and sell securities. You can opt for individual stocks and bonds or mutual funds, index funds and exchange traded funds (ETFs) that contain hundreds of individual securities. Many experts recommend a diversified fund-based approach to minimize the risk that any bad investment will cause you to lose money.
- Buy your investments. Once you’ve chosen what you want to buy, simply enter the ticker symbol in the buy field and indicate how many shares you want to buy.