A lot of people see the stock market as a mysterious and intimidating place, but in reality it’s more accessible than ever. The advent of robo-advisors, online investing and mobile trading apps have made it easier than ever for people to invest in stocks. But to understand the stock market, you need to know what it is and how it works. You also need to understand the lingo that’s used in discussions of the market.
Essentially, the stock market started as a way for entrepreneurs to raise money by selling shares in their businesses. When investors bought shares, they became part owners of the business and their values rose and fell with the fortunes of the company. Today, the markets are conducted largely on computers that run at lightning speed, matching buyers willing to buy and sellers willing to sell at various prices. To make a trade, an investor or trader follows the prompts through their investment account to put in an order, indicating the symbol for the stock they want to buy or sell under and how many shares they want to buy or sell. Intermediaries match the orders and execute the trades. When buying, the trade will generally be executed at the ask price; when selling, the trade will usually be executed at the bid price.
Large and small factors affect individual stocks’ value, but the overall movement of the market is a result of how much investors believe that what they expect to happen in the future will actually come true. Tax cuts, for example, may bolster stocks because investors think they’ll have more money to spend and invest. On the other hand, high unemployment will probably cause most stocks to fall because investors will be less confident that companies will be able to hire workers.