What is the Stock Market?
The stock market is the central trading location, in several markets around the world including the United States, for the buying and selling of company stock, bonds and other securities available for trade to the public. The stock market is more commonly known as the stock exchange, with one of the most well known being the New York Stock Exchange located on Wall Street in New York City.
Stock exchanges have many roles in business, aside from offering a central location to buy and sell stocks. One of the most common practices for companies looking for additional capital is to “go public”, or offer their corporate shares on the public market for sale. In addition to raising funds, or capital, the stock market exchange is a way for investors and investment companies to avoid letting their money sit idle in a bank account while drawing minimum interest. If invested intelligently, money invested into stocks, bonds or futures can provide a healthy retirement savings for the future.
Another corporate related function of the stock market is to provide a venue for larger companies to merge with smaller companies in the same industry, diversify their product by enacting a conglomerate merger or acquiring a new business venture. A major benefit to investors is that any publicly traded company must provide extensive financial records that are audited annually by an independent auditor. This is a requirement set by the SEC, or Securities Exchange Commission, in order to provide transparent financial reporting to investors. This is also in stark contrast to privately held companies, or companies that do not have stocks traded in a public market, which are not required to provide audited financial records.
For the general public, even if they do not invest money into a stock exchange, the stock market is a fairly reliable gauge of a country’s economy. When the stock market is down, investor’s trend toward selling off their stock in what they believe is a volatile market. If the selling continues unabated, it can lead to a stock market crash, which can precipitate an economic recession or depression.
There are several types of investment instruments that can be bought or sold through a public market. These types of instruments can include standard public corporate stock, natural resource futures, bonds and mutual funds. Each type of investment has a different risk and return level, which can allow a diversified portfolio for investors to choose from. Many brokers advocate mutual funds as a healthy investment for those looking to save for retirement, while investors looking for a fast return on their investment may be better off with more volatile corporate stocks.
Depending on the goal of the investor, they should fully research the company history and review any available financial reports before investing in a corporation’s stock offering. This can be of particular importance if the stock is an IPO, or Initial Public Offering. These types of investments can often be the most volatile and at risk of being devalued. Investors should always seek as much information as possible about and investment prior to putting their money into a stock market exchange as a means increasing their capital. As the world saw in with the fall of several well known companies, any investment carries with it an inherent risk of loss for the investor.
There are also other stock market exchanges around the world that provide investment opportunities for those looking to diversify their investments or make bigger profits from their investments. Both the Asian and European markets, while tending to be slightly more volatile than the US market, are a means of providing further diversity to an investor’s portfolio. While many investors use a brokerage firm for their trading needs, a great number of investors do the legwork and research on their own, deciding which stocks, bonds or mutual funds they want to invest in and when.