The stock market enables companies to raise funds often referred to as capital through the sale of shares. This allows the company to expand or grow its business. Investors who purchase those shares can profit in two ways: dividend payments (a fixed amount per share at regular intervals that provide a return on investment) and capital appreciation where the value of the share increases over time.
Stock prices rise and fall based on supply and demand, similar to how any other product or service does. When a company first makes its shares available to the public, it’s called an initial public offering (IPO). After that, any further buying or selling of a company’s shares is known as trading.
Investors who wish to buy a company’s shares will follow the prompts in their investment account and place a “buy order.” They’ll typically choose the symbol for the stock, how many shares they want to buy, and whether to use a market order that executes at the next available price or a limit order specifying a maximum they’re willing to pay. If you successfully buy shares, there will be a period of days until the trade is considered “settled” and you officially own those shares.
The modern stock market operates largely on computers that run at lightning-fast speeds matching many investors who want to buy stocks at a given price with others who are willing to sell shares at that price. There are also a variety of regulatory bodies that oversee the stock market including the SEC, the FINRA, and regulators across the globe to ensure that trading is fair, transparent, and follows appropriate rules.