The stock market is in many ways the backbone of the modern world economy. Stock markets allow the investment of capital in business ventures by finance professionals and the common investor. Prudent and well-researched participation in the stock market has the capability to substantially increase your financial situation and standard of living over the long term. However, the stock market is a complex economic machine with many parts, and you must have at least a basic understanding of it before any informed investing can take place.
Features
The stock market is a global marketplace in which businesses sell portions of ownership, called shares, to investors. A company's stock price is the price at which one can currently buy or sell a share of ownership on the stock market, a factor that's influenced by company performance, overall economic stability and the perception and mood of the public. The stock market as a whole is a loosely organized network of businesses, investors and places called stock exchanges where the actual buying and selling of stock takes place. Stock brokers are individuals or firms participating directly in stock exchanges on behalf of investors, buying and selling shares for people who can't be in the midst of the action themselves.
Function
The main function of the stock market is to allow companies to raise monetary resources, or capital, which they can then use to further their business pursuits. The public and open nature of the stock market allows large numbers of people to invest money in a company, and investing takes place on a consistent basis. When a competent investor buys shares in a company, she does so in hopes that the company's stock price will rise over time, in which case the investor makes a good return on her investment. In an ideal situation, both sides benefit and the economy as a whole grows stronger.
Significance
Without the existence of a stock market, businesses would find it much harder to raise funds for new ventures. Though it's not uncommon for a small group of investors or even a single wealthy investor to invest large amounts of money in a business, the amount of funds that can be raised in this way--and the speed in which they can be raised--often pales by comparison to the capital-raising power of the stock market. On the side of the small, independent investor, the stock market allows for a much larger return when the investor is competent and makes prudent decisions. The stock market allows millions of people each year to better their financial standing, even if they only participate in it indirectly through a 401k retirement plan or a mutual fund.
History
The stock market has a long history in the United States, first arising over 200 years ago in the colonies as companies and the government started selling shares and bonds in order to raise capital. The birth of the New York Stock Exchange, the first stock exchange in America, took place in 1792 when a group of local businessmen and investors agreed to meet each day and trade stock--an arrangement that still forms the basis for the operation of the New York Stock Exchange today. Numerous other stock exchanges arose over time, such as the American Stock Exchange and the NASDAQ stock exchange. These, along with the New York Stock Exchange, continue to drive much of America's economy to this day.
Misconceptions
The stock market is a very complex and globalized entity. From the outside looking in, it can seem daunting and difficult to navigate. Many people believe that only someone with extensive professional training in finance can understand and benefit from trading on it. Although it's true that people who make a career out of buying and selling on the stock market tend to outperform those who do not, anyone with a decent understanding of math and a discriminating mind can become a proficient investor. All that's needed is a desire to learn and the ability to make sound decisions with your money.
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