How does the stock market work?
BLUF: The stock market is a network of exchanges where investors buy and sell shares of publicly traded companies.
A fundamental explanation of how does the stock market work?
The Explanation
The stock market is a network of exchanges where investors buy and sell shares of publicly traded companies. Initially, companies issue shares in a primary market to raise capital. Afterwards, shares trade freely in the secondary market. Prices emerge by supply and demand: buyers bid, sellers ask, and trades execute at an equilibrium price. Exchanges (NYSE, NASDAQ, etc.) or electronic platforms match orders under regulation. Investors buy stock for dividends and/or capital gains, reflecting ownership claims on companies. The stock market thus allocates capital to businesses: companies gain funds from investors, and investors share in companies' fortunes. All trades are facilitated by brokers and protected by laws to ensure transparency and fairness.