Investors and financial institutions trade shares of publicly-traded companies in a massive global network known as the stock market. People purchase stocks for many reasons: Some hold on to them hoping their value will grow; others invest in a company’s share because they want income from dividend payments, or the right to vote at shareholder meetings; and some are interested in being able to influence how companies are run. Regardless of the reason, the stock market allows investors to move money between companies and their customers.
The stock market includes the exchanges where shares of public companies are traded, as well as the indexes that track them. A common example of a market index is the S&P 500, which tracks the value of the stock of large U.S. corporations. There are also indexes that track the value of companies in specific countries or regions, and indexes that track the value of a particular industry. Business reports often refer to the overall performance of one or more of these indexes when discussing the state of the market.
The stock market began as a way for entrepreneurs to raise money for their businesses. They would offer shares in their companies to investors, who then became part owners of the business and saw their value rise or fall as the fortunes of the company rose and fell. Today, the market operates largely on computers at lightning speed, matching many investors who want to buy shares of a company with those willing to sell them. The price that a buyer is willing to pay for the stock is known as the bid, while the amount a seller wants in return is called the ask. The difference between these 2 amounts, known as the bid-ask spread, determines whether a share of stock is sold or not.