Investing in stocks is one way to grow your wealth. Over time, stocks can outperform inflation and help you reach financial goals that may be out of reach if you just saved money in a high-interest savings account. But investing in the stock market can be complicated. And even if you understand the basic principles, market fluctuations can still be unnerving.
The stock market refers to a group of marketplaces where investors and traders buy and sell securities like shares in publicly traded companies. A share is a unit of ownership in a company, and as you buy more shares, you own a larger percentage of the company. Companies issue shares to raise money and grow their businesses. The stock market is a central place for people to trade these securities, with buyers and sellers meeting through exchanges or over-the-counter markets.
When a company makes its shares available to the public for the first time, it is called going public. The first time a company goes public, its shares are traded in what is known as the primary market. From there, further trading of the shares is conducted in the secondary market.
The price of a stock is determined by supply and demand. If many new investors want to buy a particular stock, its price will rise, which entices existing shareholders to sell their shares for a profit. Many factors can influence supply and demand, including earnings reports, political events, or the economy here or abroad.