Investing in the stock market can be an effective way to build wealth over time. But it’s important to understand how the market works before diving in. This article provides an overview of the basics, including terms and lingo you may hear.
The earliest stock markets developed as places where entrepreneurs could raise money to fund their businesses. In return, investors received shares of the business, and as the fortunes of the company rose and fell, so did the value of those shares. Today, stocks are traded on exchanges like the NYSE and Nasdaq, but a growing portion of trading is done over the internet through brokers. These brokers match people who want to buy a stock with people who want to sell it, and then facilitate the transaction almost instantly. A stock’s value rises when demand for it outpaces supply, and vice versa.
Investors can also track the performance of a large group of stocks by following an index, such as the Dow Jones Industrial Average or S&P 500. You’ll often see these mentioned in daily news reports, as they provide a broad snapshot of how the market is performing. You can even find indexes that focus on a particular country or region, as well as those that are industry-specific.
A healthy functioning stock market can also support the economy, as it gives investors more money when they sell their shares. That money can then be spent and invested back into the economy, or given to employees in the form of company bonuses.
