When it comes to the stock market, it can feel like people are talking a different language. But the basics of the market are pretty straightforward: Stocks are securities representing partial ownership of a publicly traded company and, when bought, give you the right to a share of the company’s profits (often paid as dividends) and the right to vote on company matters. Companies offer stocks to raise money and grow their businesses, while investors trade them among themselves on exchanges, such as the New York Stock Exchange or Nasdaq. A stock’s price rises or falls based on demand and supply, with buyers offering a “bid” that is usually lower than what sellers are willing to accept in exchange for the shares. These trades are facilitated by brokers who match buyers and sellers.
Publicly traded companies are the main participants in the stock market, and they offer their stocks to the general public through a process called an initial public offering. But the market includes other securities, such as debts (loans that governments or corporations issue to raise funds) and commodities, such as oil, wheat and coal. It also includes real estate investment trusts, which invest in properties like malls and office buildings and must legally pay out 90% of their profits as dividends each year.
Several factors affect the movement of all stocks, including news stories and economic conditions. For example, tax cuts can lift the value of stocks because Americans should have more money to spend and put back into the economy.