The stock market is a place where people buy and sell fractional ownership of publicly traded companies. It distributes control of some of the world’s biggest companies among hundreds of millions of individual investors, whose buying and selling decisions determine company value. It also facilitates price discovery by allowing potential buyers to bid for shares and potential sellers to ask for them at a price that maximizes fairness for both parties. Many stocks are sold on exchanges, but some are traded over the counter, where they may have very low share prices (“penny stocks”) and minimal liquidity (buyers and sellers may be hard to find so orders may not be filled right away or at all).
The price of a stock is determined by supply and demand: if more investors want to buy a stock than there are willing to sell it at, the price goes up. If more investors are willing to sell than buy, the price goes down. People buy and sell stocks for a variety of reasons, from speculation that the price will rise to wanting to participate in a company’s profits as a shareholder, which can often be distributed in the form of dividends. Some people also invest in stocks to diversify their portfolios, so that if one of their stocks does poorly, they still have other investments that are performing well.
Investors can either “do it themselves” by investing directly in companies, or they can work with a financial professional to help them set goals, choose appropriate investments and manage their portfolio. Some people even invest in what are called ETFs, which are funds that track a selection of companies from different industries, or indices like the TSX, Dow Jones, and S&P 500, to try to diversify their risk.