When you hear the word “stock market,” you may imagine rows of screens filled with red and green numbers. The stock market is a place where people who own shares of a company can sell them to others. It is overseen by the Securities and Exchange Commission (SEC) and individual state regulators. Investors buy and sell shares in companies through brokers or online trading platforms.
A stock is a share of ownership in a corporation, which represents a percentage of the total value of the company. When a company raises capital by selling shares to investors, it is called a public offering. The total value of a company is known as its market capitalization.
The stock market acts as a matchmaker, pairing share sellers with interested buyers. Sellers can be individuals looking to purchase a company’s shares in an initial public offering, or existing shareholders who are reselling their own shares. Buyers can be individuals, financial institutions, or robo-advisors who invest on behalf of clients.
To trade a stock, both the seller and buyer must agree on a price. The price is determined by supply and demand. If there are more people willing to buy than there are sellers at a particular price, the stock will rise. If the opposite is true, the price will fall.
A seller will not sell at a loss, so the offer or ask is typically close to the market price. Traders can try to influence the offer or bid price by using a limit order or another more sophisticated order type.