A stock market is a marketplace where people can sell or buy shares of a company. Buying shares gives you part ownership of the company, and if the company does well, the value of your investment can go up. For long-term investors, this can be a great way to grow your money and help companies expand.
A modern stock market is a collection of electronic exchanges that connect many different buyers and sellers. Most of the trading happens at lightning speed, matched by computers that match a potential buyer’s bid price with a potential seller’s ask price. Various types of investments can be traded on the stock market, including stocks, bonds, real estate investment trusts (REITs), exchange-traded funds (ETFs) and commodities like oil and gold.
The market is governed by rules to ensure fair practices and promote confidence in the system. These rules vary by country, but are generally designed to protect individual investor’s interests and to limit the damage from a major financial crisis. Some examples of these rules include regulations limiting margin buying (the practice of using borrowed money to increase your investment) and requiring the use of a minimum initial payment when purchasing stocks.
Before you consider investing, it’s important to take a clear-eyed look at your finances and establish a savings plan. A good starting point is to set aside enough cash to cover a few months of expenses. It’s also important to have a solid emergency fund to help cushion the impact of any big financial setbacks.