A stock market is a marketplace where shares of publicly listed companies are bought and sold. Despite the complexity often associated with financial markets, the underlying mechanics are relatively straightforward.
Primary vs. secondary markets
Companies raise capital by issuing shares in the primary market, typically through an initial public offering (IPO). After that, those shares trade between investors in the secondary market — which is what most people mean when they refer to "the stock market."
How prices are set
Share prices are determined by the ongoing interaction of buy and sell orders. When more participants want to buy at a given price than sell, prices tend to rise, and vice versa. This continuous price discovery reflects the market's collective view of a company's value, though that view can be volatile and is not always accurate.
Exchanges and market makers
Stock exchanges provide the infrastructure that matches buyers and sellers. Market makers and other liquidity providers help ensure that trades can generally be executed without excessive delay, in exchange for capturing the difference between buy and sell prices (the spread).
Indices as a reference point
Indices such as broad market benchmarks track baskets of stocks to give a snapshot of overall market performance. They are often used as a reference point for individual portfolio performance, though no index perfectly represents every investor's specific holdings.
