If you are like most people, you have heard of the stock market and you understand that it’s where rich people keep their money and all, but you never really took the time to understand what the stock market is and what it does. The market is a platform for trading securities previously enlisted in each market.
The first thing you need to understand is that there isn’t just one market, there are hundreds if not thousands of different markets throughout the world. The most popular and widely trade stock market by far is the New York Stock Exchange (NYSE) located on Wall Street in New York City. What differentiates markets are their locations, meaning what country, city, or region that they are located in, and the size of the companies traded in them. This does not mean that markets restrict companies from other countries, cities, or regions from being traded in them, it simply means that the market, its offices, and the trading floor, are physically located there.
Each market has regulations and requirements that each company has to meet before being considered to trade in the market, depending on things like, operating income, cash flow, revenue, number of employees and other things depending on the market. The NYSE, being the biggest market, has the toughest requirements and is the hardest market for a company to go public in. Going forward, unless stated otherwise in an article, we will be talking about the NYSE when we refer to the stock market just because it’s the most popular and most used market and it’s the most convenient to trade in for multiple reasons. However, you should understand that there are other major markets around the world like the London Stock Exchange and Euronext in Europe, the Tokyo Stock Exchange in Asia, the BOVESPA (Brazil Stock Exchange), and more.
The last thing that I find important to mention regarding the stock market is how we can tell if the market is doing well or not. Each market has an index or series of indexes that help investors know how each stock market is doing and how the industries in the market are doing. The most used index for the NYSE is the S&P 500 followed by the Dow Jones Industrial Average. Every market has some sort of index which can be representative of the whole market is doing, like the S&P 500, or they can be industry focused like the Dow Jones. There are other indexes for different things such as industry, market size, economic trends, etc.
The stock market is the middleman in investing. it connects buyers with sellers and calculates buying and selling prices according to the investors, shareholders, etc. Investing can be very complicated but hopefully, with the help of our series Investing 101, you’ll be able to understand how it works and what you should do to start investing.