A stock market is where people buy and sell shares of publicly traded companies. It serves two important purposes: a company can raise money called capital by offering shares for sale; and investors can profit from owning those shares in the form of dividend payments and returns when the share price rises.
When a private company first makes its shares available to the public in order to grow, it’s known as going public. That initial offering is the primary market, and when that happens there are a variety of other buyers and sellers in the secondary markets. A stock’s price is driven by supply and demand, and what may seem like a high price to one investor might be a bargain to another.
The stock market is regulated, with rules designed to protect all investors and ensure fair practices. The Securities and Exchange Commission (SEC) oversees large market participants, while the Financial Industry Regulatory Authority (FINRA) is more focused on protecting retail investors. There are also laws that govern short selling, margin buying, and derivatives, all of which can help investors control large blocks of stocks for less than they might otherwise be able to afford with an outright purchase or sale.
There are many reasons to invest in the stock market, from building wealth to having a voice in how a company is run. People also invest in stocks because they provide a higher rate of return than bonds, although the risks can be greater too.