What is the Stock Market?

With all the talk of the stock market as a singular entity, it’s easy to forget what actually makes up the stock market and how it works.

Even though many of us talk about “the stock market” in a way that makes it sound like one giant financial monolith, the actual market is a little more nuanced. The overall market includes multiple exchanges, such as the Nasdaq or New York Stock Exchange (NYSE). If you want to buy stocks of Apple (AAPL), you would get that on the NASDAQ. Honeywell International, Inc. (HON) is on the NYSE.

An easy, and admittedly simplistic, way to think of it is like a service center on the interstate. You might pull into Service Center #9 (the stock market), where you can gas up your car at Shell, and get lunch at Subway (the indexes). Before you leave, you’ll grab some coffee and snacks (stocks) for the road. This market, though made up of several separate businesses, is all one, centralized spot for you to get what you need.

Of course, that doesn’t take into account the fact that you can also sell stocks you already own, or that prices can fluctuate based on how popular a given item is, but you get the idea.

The stock market, as a whole, provides a destination for publicly owned companies to sell shares, and for investors to buy and sell them. The goal of an investor using the stock market is to make money: to buy a stock low, and then sell it for a price higher than they paid. The goal of the company that has gone public is to increase the worth of their shares.

How does it all work? Market prices are determined by the actions of millions of investors every day, including thousands of well-trained security analysts, technical analysts, insiders, and friends of insiders.

To learn more, download our FREE report, How to Invest in Stocks and Other Investing Basics. You’ll learn everything you need to get started investing on your own.