The stock market is where shares of companies change hands between buyers and sellers
The stock market is a system for buying and selling pieces of companies. When you buy a share of stock, you own a small part of that company. If the company does well, your share may become worth more money. If the company struggles, your share may lose value. The stock market is where these trades happen — through exchanges like the New York Stock Exchange (NYSE) or NASDAQ, which are physical and electronic marketplaces that match buyers with sellers.
Companies sell shares to raise money for growth, equipment, or paying off debt. Investors buy shares hoping the company will grow and the share price will rise, or hoping the company will pay them a portion of profits (called a dividend). The price of a share moves based on what buyers and sellers think the company is worth right now — not what it was worth last year or what it might be worth next year.
Key Takeaways
- A share of stock represents ownership in a company, and the stock market is where shares are bought and sold between investors.
- Companies issue shares to raise money, and investors buy shares hoping the price will rise or the company will pay dividends.
- Stock prices move based on supply and demand — how many people want to buy versus how many want to sell at any given moment.
- You can buy stocks through a brokerage account, which is an account with a company that executes trades on your behalf.
- The stock market is open during business hours on weekdays, and prices are quoted in real time during trading hours.
Why companies issue stock instead of borrowing money
A company can raise money in two main ways: by borrowing (taking on debt) or by selling ownership stakes (issuing stock). When a company borrows, it must pay back the loan with interest, whether business is good or bad. When a company sells stock, it gets cash upfront but gives up a piece of ownership and future profits.
A company chooses to sell stock when it needs a large amount of money and does not want to take on debt payments. A startup might sell stock to fund research and development. An established company might sell stock to buy another company or expand into new markets. Once shares are issued and trading on an exchange, the company does not directly control the price — the market does.
How stock prices are set and what moves them
Stock prices are set by supply and demand. If many people want to buy a stock and few people want to sell it, the price goes up. If many people want to sell and few want to buy, the price goes down. This happens in real time during market hours, which are 9:30 a.m. to 4:00 p.m. Eastern time on weekdays.
What causes people to want to buy or sell? News about the company — earnings reports, new products, leadership changes, lawsuits, or industry trends. News about the economy — interest rates, inflation, unemployment. News about competitors. Investor sentiment, which is how optimistic or pessimistic people feel about the market overall. A single piece of news can cause a stock to jump or drop several percent in minutes.
The price you see quoted is the price of the most recent trade. It is not a may provide of what you will pay if you place an order right now — by the time your order reaches the market, the price may have moved. This is why investors place limit orders (buy or sell only at a certain price) rather than market orders (buy or sell at whatever the current price is).
The difference between stock exchanges and brokerages
A stock exchange is the marketplace itself — the system that matches buy and sell orders. The NYSE and NASDAQ are the two largest U.S. exchanges. They set the rules for which companies can list shares there, they operate the trading systems, and they publish price data. You cannot walk into an exchange and buy a stock directly.
A brokerage is a company that holds your money and executes trades on your behalf. When you open an account at a brokerage like Fidelity, Charles Schwab, or E-Trade, you deposit money, place an order to buy a stock, and the brokerage sends that order to an exchange. The exchange matches your buy order with someone else's sell order. The brokerage then holds the shares in your account and keeps a record of the transaction.
Most brokerages now charge zero commission per trade, meaning you pay no fee to buy or sell. Some brokerages make money by lending out your shares to short-sellers, by offering premium services, or by earning interest on cash in your account. The brokerage is separate from the exchange — you deal with the brokerage, but the exchange is where the actual trade happens.
What happens when you own a stock
When you own shares, you own a fractional stake in the company's assets and future earnings. You have the right to vote on major company decisions (like electing the board of directors) if you attend the shareholder meeting, though most individual investors do not. You may receive dividends if the company pays them — a portion of profits distributed to shareholders, usually quarterly.
You can sell your shares anytime the market is open. You do not have to hold a stock forever. The goal for most investors is to sell at a higher price than they bought, locking in a gain. If you sell at a lower price, you lock in a loss. The difference between what you paid and what you sold for is your capital gain or loss, and it has tax consequences when you file your tax return.
If a company goes bankrupt, shareholders are last in line to recover money — creditors and employees are paid first. It is possible to lose your entire investment in a single stock. This is why investors spread money across many stocks (diversification) rather than putting it all in one.
How the stock market differs from other investments
Stocks are different from bonds, which are loans you make to a company or government. With a bond, you know the interest rate and the repayment date upfront. With a stock, there is no may provide return — you are betting on the company's future performance.
Stocks are different from mutual funds and exchange-traded funds (ETFs), which are baskets of many stocks bundled together. When you buy a mutual fund or ETF, you own a piece of all the stocks in that basket, which spreads your risk. When you buy an individual stock, you own a piece of one company.
Stocks are different from real estate or physical goods because they are liquid — you can sell them quickly during market hours and have cash in your account within a few days. Real estate takes weeks or months to sell. Stocks are also easier to buy in small amounts — you can buy one share of an expensive stock, whereas buying real estate requires a large down payment.
How to start buying stocks
To buy stocks, you need a brokerage account. Open an account online with a brokerage — Fidelity, Charles Schwab, E-Trade, and Robinhood are common choices. You will provide your name, address, Social Security number, and employment information. The brokerage will verify your identity and ask about your investment experience.
Once your account is open, you deposit money via bank transfer, check, or wire. Then you search for a stock by its ticker symbol (a one- to four-letter code, like AAPL for Apple or MSFT for Microsoft). You enter the number of shares you want to buy and place an order. During market hours, your order is typically filled within seconds. After hours, your order waits until the market opens the next day.
You can set up automatic investments, where money is transferred from your bank account to your brokerage on a schedule and invested in stocks or funds you choose. Many people use this method to invest regularly without having to think about timing the market.
Frequently Asked Questions
Do I need a lot of money to start buying stocks?
No. Most brokerages have no minimum deposit, and you can buy a single share of any stock. If a stock costs $150 per share, you can buy one share for $150 rather than waiting to afford 10 shares. Some brokerages also offer fractional shares, so you can invest any dollar amount, even $1.
What is the difference between a stock and a share?
A stock is the ownership stake itself. A share is one unit of that ownership. If a company has issued 1 million shares of stock, each share represents one millionth of the company. The terms are often used interchangeably, but technically you own shares of a stock.
Can the stock market crash and wipe out my investment?
A single stock can go to zero if the company fails, and you would lose your entire investment in that stock. The overall stock market can drop sharply (a crash), but it has historically recovered over time. Diversification — owning many stocks or funds rather than one — reduces the risk that a single company's failure will destroy your wealth.
How do I know what price to pay for a stock?
The market price is set by supply and demand, not by any formula. You can research a company's earnings, growth rate, and industry to decide whether you think the current price is fair, but ultimately you pay whatever the seller is willing to accept. Many investors use tools like price-to-earnings ratios to compare stocks, but there is no single "correct" price.
What happens to my stocks if the brokerage goes out of business?
Your stocks are held in your name, not in the brokerage's name, so they are protected. If a brokerage fails, the Securities Investor Protection Corporation (SIPC) protects up to $500,000 per account (including $250,000 in cash). Your stocks would be transferred to another brokerage. This is why choosing a well-established, regulated brokerage matters.