Every day, billions of dollars worth of stocks, bonds, exchange-traded funds (ETFs), and every other financial asset are transferred from one person or company to another. But what is the stock market?
What is the Stock Exchange?
A stock exchange is where the stock market action takes place. Traders converge onto this arena and buy and sell shares of stocks and bonds, execute trades, negotiate prices, monitor markets, and track supply and demand. It is estimated that approximately $100 billion exchanges hands every day.
What Are Stocks?
A stock is a security (tradable financial asset) that represents an ownership stake in a company. Businesses that are publicly traded on the stock market sell shares to raise money. When someone buys stocks in a company, they get to own part of that business.
How Do People Trade Stocks?
Years ago, the only way to trade stocks was through a broker (an agent at a firm who would invest on your behalf). However, a whole host of services have been developed that essentially gives you the freedom to trade on your own. The main method for a lot of independent investors – passive or professional – is by opening a brokerage account at your bank and then make your trade on the institution’s platform.
Why Do We Have a Stock Market?
In 1792, the nation’s first and biggest brokers signed the Buttonwood Agreement. The pact established commission-based trading that triggered the buying and selling of war bonds and bank stocks. The deal was later updated and the brokers renamed themselves The New York Stock and Exchange Board, renting out space throughout the city. It was not until 1865 when the group moved into 11 Wall Street.
The stock market is instrumental in companies raising money by offering stock shares and corporate bonds and investors earning capital gains and dividends. What is often neglected is that the main objective of a stock market is to openly and fairly regulate stock transactions and a myriad of other financial assets.
Does the Stock Market Influence Our Lives?
The stock market is one of many indicators of how great or how poorly an economy is performing. That said, since more than half the country owns stock, a market correction or financial crisis can destroy the livelihood of millions of Americans. Whether it is their 401(k) or personal investment, a crash on the NYSE can produce devastating consequences that can have a domino effect. Even people without a stake in equities would be impacted by a dramatic decline in the stock market.
