The stock market is a network of exchanges where buyers and sellers trade shares of publicly listed companies. It operates on the principle of supply and demand, meaning stock prices fluctuate based on how many people want to buy versus sell a stock

Key Components and How It Works

• Primary Market: Companies raise capital by issuing new shares through an initial public offering (IPO). This is where shares are first sold to investors

• Secondary Market: After the IPO, shares are traded among investors on stock exchanges like the New York Stock Exchange (NYSE) or NASDAQ. The company is not directly involved in these trades

• Stock Exchanges: These provide the infrastructure for trading, ensuring orderly markets, regulatory compliance, and real-time price dissemination. Most trading is now electronic, with computer systems matching buy and sell orders almost instantly

• Price Determination: Stock prices are set by supply and demand. If more people want to buy a stock than sell it, the price rises; if more want to sell, the price falls. Prices reflect the last agreed transaction between buyers and sellers

• Market Participants: Include individual investors, institutional investors (like mutual funds and pension funds), traders, market makers who provide liquidity, and brokers who facilitate trades

Why Companies and Investors Participate

• Companies issue shares to raise money for growth and operations.
• Investors buy shares to potentially earn dividends (a share of profits) and capital appreciation (increase in stock price). Shareholders may also have voting rights in company decisions

Role of Regulation

Regulatory bodies such as the U.S. Securities and Exchange Commission (SEC) oversee the market to protect investors, ensure fair trading, and maintain market integrity

Summary

In essence, the stock market is a complex but organized system that allows companies to raise capital and investors to buy and sell ownership stakes in those companies. Prices reflect collective market sentiment and information about company value, enabling efficient capital allocation and investment opportunities