The stock market is where shares of public companies are bought and sold, with investors gaining profits in two ways. The first is by earning dividends, which are payments made on a regular basis that give you an annual return. The second is through capital appreciation, which happens when the value of your investment rises over time.
Investors can buy and sell stocks through their brokerage accounts, with some doing it in person on a trading floor (though a growing amount of the trading takes place online). When buying or selling a stock, traders look at 2 prices: the ask and bid. The bid is what a buyer is willing to pay, and the ask is what a seller is offering. When the bid and offer match, the transaction goes through.
There are many reasons to invest in stocks, including the opportunity for a higher rate of return than might be available with other investments or even just keeping your money in a savings account. Another benefit is having a voice in how a company is run, since shareholders get one vote per share they own.
Aside from individual stocks, the stock market also includes indexes that track broader market trends. Some of the most popular are the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite Index. You’ll often hear these cited in daily news reports when discussing market performance. There are also industry-specific indexes, like those for energy, healthcare and technology.