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The stock market is a constellation of marketplaces where securities like stocks and bonds are bought and sold. Stock markets provide you with easy, transparent access to investment assets, and they help professional investors determine fair prices for public companies.
What Is the Stock Market?
Think of the stock market as the main financial venue where investing happens. It’s a collection of all the places where matches are made between buyers and sellers trading shares of public companies.
“The stock market” and “Wall Street” can refer to the entire world of securities trading—including stock exchanges where the shares of public companies are listed for sale and markets where other securities are traded. The New York Stock Exchange is the biggest stock market on earth.
How Does the Stock Market Work?
The stock market helps companies raise money to fund operations by selling shares of stock, and it creates and sustains wealth for individual investors.
Companies raise money on the stock market by selling ownership stakes to investors. These equity stakes are known as shares of stock. By listing shares for sale on the stock exchanges that make up the stock market, companies get access to the capital they need to operate and expand their businesses without having to take on debt. In exchange for the privilege of selling stock to the public, companies are required to disclose information and give shareholders a say in how their businesses are run.
Investors benefit by exchanging their money for shares on the stock market. As companies put that money to work growing and expanding their businesses, investors reap the benefits as their shares of stock become more valuable over time, leading to capital gains. In addition, companies pay dividends to their shareholders as their profits grow.
The performances of individual stocks vary widely over time, but taken as a whole the stock market has historically rewarded investors with average annual returns of around 10%, making it one of the most reliable ways of growing your money.
Who Regulates the Stock Market?
The Securities and Exchange Commission (SEC) regulates the stock market in the U.S. The SEC was created after the passing of the Securities Act of 1933, following the stock market crash of October 1929. SEC regulations cover four main areas:
- Stock exchanges
- Brokers and dealers
- Financial advisors
- Mutual funds
The SEC’s mission is to protect investors, maintain fair, orderly and efficient markets, and facilitate capital formation. Thanks to SEC rules, companies that publicly trade on the stock market must tell the truth about their business, and those who sell and trade securities must treat investors fairly and with honesty.
Stock Market vs Stock Exchange
Although the terms are used interchangeably, the stock market is not the same as a stock exchange. Think of a stock exchange as a part of a whole—the stock market comprises many stock exchanges, such as the Nasdaq or New York Stock Exchange in the U.S.
When people talk about how the stock market is performing, they mean the thousands of public companies listed on multiple stock exchanges. And more generally, the stock market can be thought of as encompassing a very broad universe of bonds, mutual funds, exchange-traded funds and other securities beyond just stocks.
What Is a Stock Market Index?
A stock market index tracks the performance of a group of stocks that represents a particular industry or segment of the stock market, like the technology, energy and transportation sectors.
Often, one of three large indexes is used as shorthand to describe the performance of the U.S. stock market as a whole:
- Dow Jones Industrial Average. The DJIA is made up of 30 blue-chip stocks of U.S. industrial companies.
- S&P 500. The S&P 500 represents 500 of the largest companies in the U.S. economy.
- The Nasdaq Composite. The Nasdaq Composite tracks the performance of more than 3,000 stocks listed on the Nasdaq stock exchange.
Other Types of Markets
The stock market generally refers to markets and exchanges where equity shares and related securities are traded. Other types of financial assets have their own markets.
- Over-the-Counter Markets. OTC markets provide a venue for trading that takes place outside of major exchanges. OTC trades are primarily made directly between sellers and buyers, and prices may or may not be publicly available. Most bonds are traded OTC, and many stocks—including penny stocks—are also traded over-the-counter.
- Commodities Markets. Raw materials like steel, coal and oil are traded on commodities markets. There are around 50 major commodity markets worldwide that facilitate trade in a wide range of commodities.
- Derivatives. Derivatives are financial contracts like options whose value is tied to an underlying asset. These are essentially contractual bets about whether individual securities’ values will rise or fall. For experienced investors, derivatives can be extremely lucrative ways to hedge their bets when investing, and they can be incredibly risky for beginners.
- Foreign Exchange Markets. Forex trading is a borderless, international market for exchanging currencies. Forex traders take advantage of the constantly fluctuating value of different currencies to make profits, and help provide liquidity for international trade.
- Cryptocurrency. Bitcoin, Ethereum and other cryptocurrencies are traded on specialized crypto exchanges.
How to Invest in the Stock Market
If you want to invest in the stock market, the process to get started is easier than you think:
- Decide what kind of account you want to open. From retirement savings to college savings, from short-term goals to long, there really is an investment account for everything.
- Open a brokerage account. Once you’ve decided what kind of account you want, you’re ready to open an account at a provider called a brokerage. When choosing a company, consider their fees and available investment options.
- Deposit money. To get started, you need to make an initial deposit. You can also set up recurring deposits to automate your investments going forward.
- Choose your investments. Once your account is open, you can buy and sell securities. You can opt for individual stocks and bonds or mutual funds, index funds and exchange-traded funds (ETFs) that contain hundreds of individual securities. Many experts recommend a diversified, fund-based approach to minimize the risk any one bad investment loses you money.
- Purchase your investments. Once you’ve settled on what you want to buy, simply enter the ticker symbol in the buy field and indicate how many shares you want to buy.
Stock Market FAQs
When does the stock market open?
The U.S. stock market is open from Monday to Friday from 9:30 a.m. to 4 p.m. EST. It also follows planned U.S. holidays and is closed on government holidays including New Year’s Day, Martin Luther King Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Juneteeth National Independence Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The markets may also close early on other days throughout the year.
Extended hours trading may also be available in some cases, including pre-market trading from 4 a.m. to 9:30 a.m. Eastern Time and after-hours trading from 4 p.m. to 8 p.m. Eastern Time.
When does the stock market close?
The U.S. stock market closes at 4 p.m. Eastern Time (with the exception of after-hours trading that is available in some cases from 4 p.m. to 8 p.m. Eastern Time).
The stock market is also closed on government holidays including New Year’s Day, Martin Luther King Jr. Day, Presidents’ Day, Good Friday, Memorial Day, Juneteeth National Independence Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. The markets may also close early on other days throughout the year.
How do you make money in the stock market?
Investors make money in the stock market by exchanging their money for shares. Companies then put that money to work growing and expanding their businesses, and investors reap the benefits as their shares of stock become more valuable over time, leading to capital gains. As profits grow, companies also pay dividends to their shareholders.
Is now a good time to invest in the stock market?
The sooner you can start investing your money, the longer you’ll have for it to grow and pay dividends. After all, the stock market has historically rewarded investors with average annual returns of around 10%, making it one of the most reliable ways of growing your money.
Plus, getting started with investing is likely easier than you think. After picking the type of account you want, opening a brokerage and depositing your first investment is easy. Work with a financial expert if you aren’t sure which investments—stocks, bonds, mutual funds or ETFs—are right for you.
The stock market is an important part of our global economy. It is a place where stocks and other securities are traded between buyers and sellers. It is a source of capital formation, risk management and price discovery.
Understanding how the stock market works is essential in order to effectively invest in it. The stock market is composed of exchanges. These exchanges are regulated by government authorities, including the Securities and Exchange Commission in the United States. These exchanges are responsible for helping companies raise capital by buying and selling stocks. When a company issues stocks, they are immediately bought and sold on the market.
Investors can buy and sell stocks in real time and can make profits or losses. The stock market is made up of different exchanges, such as the NYSE and the Nasdaq, that offer buyers and sellers a chance to trade in different stocks. Trading involves the buying and selling of stocks for profit. The price of a stock is determined by the demand for it. Higher demand usually means a higher stock price.
Traders and investors use different methods to analyze the stock market, which helps them decide when to buy and sell stocks. Analyzing the stock market involves understanding the financial statements of companies and researching news organizations. Traders and investors also use technical analysis, which uses historical stock market data to create charts and models.
The stock market is an exciting and volatile market that can provide high returns. However, it is also a risky investment and investors can suffer losses. Therefore, it is important to understand how the stock market works before investing any money.