Next video:
Loading the player...

A stock market is where shares in corporations are issued and traded.  Stock markets are key components of a free market economy.

Stock markets serve two main functions. 

From the company perspective, stock markets provide access to capital, usually in the form of cash.  If a company needs to finance a major project, it can sell its shares in the stock market to raise capital, instead of borrowing the money from a bank.

From the shareholder perspective, the stock market provides a way to participate in a company’s growth, and also quickly convert shares into cash.  This happens in two main ways. 

In a privately held company, stockholders are usually comprised of founders and initial investors who can sell their shares on the stock market exchange and reap the reward for the risk they took in creating and growing their business venture.  This is referred to as the primary market.

For investors who own shares in publicly traded companies, the stock market allows them to participate in the growth of a company without taking the risk of starting a company themselves. This is referred to as the secondary market. 

The two main stock markets in the United States are the New York Stock Exchange (NYSE) and the NASDAQ.  Foreign stock exchanges include London Stock Exchange, Hong Kong Stock Exchange, Euronext and Deutsche Bourse.

In the early days of the stock markets, stocks were traded on the floor of the exchange person-to-person.  Now, almost all stock trades are done electronically. 

Related Articles
  1. Investing

    Stock Exchanges Around The World

    We tell you about five of the most popular stock exchanges from around the globe.
  2. Insights

    A Breakdown on How the Stock Market Works

    Learn what it means to own stocks and shares, why shares exist, and how you buy and sell them.
  3. Investing

    Who Owns The Stock Exchanges?

    As M&A heats up among the exchanges, here's how the market currently looks.
  4. Financial Advisor

    China’s Stock Markets vs U.S. Stock Markets

    The U.S. and China are home to the biggest stock markets in the world, but they are very different in a number of important ways.
  5. Insights

    Getting To Know The Stock Exchanges

    Here are the answers to all the questions you have about stock exchanges but are too afraid to ask!
  6. Managing Wealth

    What is Capital Stock?

    Capital stock refers to the number of authorized shares a corporation may issue, both common and preferred.
  7. Investing

    What Are Corporate Actions?

    Be a savvy investor - learn how corporate actions affect you as a shareholder.
  8. Investing

    Financial Markets: Capital Vs. Money Markets

    Two commonly used components of the financial market are money markets and capital markets. Find out the similarities and differences between them.
  9. Investing

    5 Reasons You Should Love Stocks

    Despite their volatility, stocks as a whole have historically risen in value over time more than any other type of investment.
Hot Definitions
  1. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  2. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
  3. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
  4. Hard Fork

    A hard fork (or sometimes hardfork) is a radical change to the protocol that makes previously invalid blocks/transactions ...
  5. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  6. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
Trading Center