When you hear the term “stock market,” it may feel like listening to a foreign language. It’s an investment strategy where investors use money to buy shares in companies in hopes of a return on their investments. In the United States, the Securities and Exchange Commission regulates the stock market, but other national and international regulators also oversee it.
A key function of the stock market is pairing stock sellers with interested buyers. The sellers can be companies issuing their own shares, like through an IPO, or they can be individuals looking to resell the stock they’ve purchased in order to raise cash. The buyers can be private investors, like you and me, or institutions, like retirement funds, mutual fund managers, insurance companies, or banks. Other participants can include index funds and robo-advisers that automate investments for individual investors.
One of the most common ways to invest in the stock market is by establishing a brokerage account. This allows you to buy and sell stocks directly through an exchange or over the counter. A reputable broker will help you understand your risks and rewards in trading.
When it comes to investing, many experts recommend diversifying your portfolio. This way, if one company or industry falters, your portfolio overall won’t fall as much. You can achieve this by buying stocks across industries or through ETFs and mutual funds, which will help you get broad exposure at a lower cost. Regardless of how you choose to invest, once your trade has been agreed upon by both parties, it will take a few days for the transaction to “settle.” Then you, as the buyer, officially own the shares.