When you hear about the stock market, it can sound like someone speaking in a foreign language. That’s because stocks are complicated, and their price movements can feel a bit like a roller coaster ride. The good news is that most people can understand how the stock market works and the lingo to use (although they might not be comfortable riding it, too).
Investors hand over money to a company in exchange for shares, making them part owners of that business. As the fortunes of the business rise and fall, so do the value of those shares. Investors may also receive dividend payments, which are part of the company’s profit. Most major public companies have millions, or even billions, of shares in circulation.
A stock’s price moves based on demand from investors who want to buy the shares, and supply from those who wish to sell them. The process is facilitated by brokers who either have direct access to an exchange’s infrastructure, or route trades through another broker who does. Today, that process happens at lightning-fast speeds on computers that match those wanting to buy at a certain price with those willing to sell at that price.
Other assets that are traded in the stock market include bonds, which are issued by governments and corporations to raise capital and promise investors interest payments. They can be held by individuals, institutions like mutual funds and pensions, or hedge funds. There are also real estate investment trusts (REITs), which invest in property, and commodities, like oil, wheat and steel, that can be sold either directly or through futures contracts.
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